Belgium tells Lufthansa state aid possible if conditions met

The Belgian government said on Friday it was committed to reaching a deal with Lufthansa to save its Belgian subsidiary Brussels Airlines if the future of the national carrier was guaranteed......»»

Category: topSource: reutersMay 15th, 2020

Technocratic Dystopia Is Impossible

Technocratic Dystopia Is Impossible Authored by Robert Blumen via The Brownstone Institute, In the coming technocratic dystopia, life will be grim for most of us. For those who survive the preliminary depopulation, a technological control grid run by AI and robots will keep tabs on our every movement. You notice that your pantry cube is running a bit low on freeze-dried bug burgers, fake meat, and cockroach milk.  You time your break to fall outside of your three daily hours of wind-powered internet. Forbidden by the World Economic Forum from owning your own car, you flag down a quick ride share from your leased living quarters in a stacked shipping container on the near side of your 15-minute city. After dropping off the seven other people in your ride share, you arrive at the fake meat distribution point, where you wait in a long queue, hoping to trade in a few of your remaining carbon ration credits for more provisions.  You worry that your transaction might be rejected by the central bank digital currency network. After all, there was that one moment where your wrinkled brow showed slight unhappiness. You wonder if the facial recognition AI picked it up during one of your masked Zoom calls.  But for the elites, things will be better than ever. Private jets, cars, ultra wagyu beef tenderloin (for their dogs), and large estates. Life-extension drugs will make them nearly immortal. They will vacation at 5-star hotels, a short limo trip from the Louvre, but without the crowds.  The WEF – an infinite source of technocratic malapropisms – says that you will “own nothing” and be happy (the happiness perhaps will be a drug-induced state as Yuval Hariri suggests). Many independent researchers who have looked into the WEF’s plans have reported similar findings. For example – see James Corbett, Patrick Wood, Whitney Webb 2, Tessa Lena 2, Jay Dyer, and Catherine Austin Fitts.  Aaron Kheriaty, who says much the same in his book The New Abnormal, calls the oncoming system “communist capitalism.” Jeffrey Tucker calls it “techno-primitivism.” He describes the system as:  a combination of digital technology plus a rollback into previous ages of existence to a time without fossil fuels and meat plus geographical isolation and limited choices for average people. In other words, it’s a step back to feudalism: the lords of the manor are digital titans and the rest of us are peasants toiling in the fields and eating bugs when the food runs out.  The researchers that I have cited have done a deep dive into the GI tract of the beast. While I don’t dispute the truth of their findings, my problem with much of the commentary on the Great Reset is that it takes the Grand Plan at face value. Indeed, a group of elites have a plan. They are open about some parts of it (and most likely, less open about others).  One can imagine something, plan for it, and even try to bring it into being. However, in order to succeed, the laws of reality must be observed. The laws of cause and effect apply to all things. Grand utopian visions always fail in the implementation – if they even get that far. How It Works Or Does Not Work The idea of a totalitarian control grid is familiar to science fiction fans, but imaginative fiction stretches boundaries for artistic purposes. Utopia (including dystopia) is a form of science fiction. There are crucial aspects in the plan for a technocratic dystopia that, as fearful as it is, cannot be realized.  Technocracy imagines a world where elites have all the good things in life for themselves, much as the middle class in the developed world does today. Internal combustion engines, reliable wall power, air travel, consumer electronics, beef, alcohol, dentistry, stable dry and well-insulated buildings, books, and video streaming services are all readily available. At the same time, a much reduced population of dispirited, drugged worker-slaves will own nothing. That is a vision but it is not a possible version of reality.  To be elite in this world means to be wealthy. Wealth is created through the production of goods and services. There are many forms of what could be called “second-order elites” – wealthy people who parasitize off privately created wealth. But their ability to do that depends on true wealth, which is created by production. Once you have enough goods for your own needs, additional wealth is held in the form of assets. Assets can be reduced to a few categories: land, equity, debt, commodities (below ground in the form of deposits and above ground such as inventories of metals). Without going through each asset class in detail, equities and debt derive their value from businesses, which exist only because they have customers. After they have impoverished everyone and confiscated all of our property, their assets will be worth nothing. You will be worth nothing, and you will wonder why. I have seen dystopian predictions for how the rich will get richer by trading futures contracts on our biometrics. Futures contracts are a bet with a zero-sum outcome. The winning side makes a profit and the losing side takes an equal loss. Who will the losers be? And what good is the money unless there are goods and services for sale to spend it on?  Kheriaty cites some elite policy wonk who thinks that “funding to the public sector must increase.” By what? Who will pay the taxes? Even if the public sector had unlimited access to money, who will produce the goods and services that the public sector needs to buy, in order to build their control grid? With what will they pay the workers who operate it?  How will the elites get stuff for their personal use when it is not available to the masses? Modern goods depend on a vast base of accumulated capital. To take one example, consider airplanes and airports. Airports, including the runways, are complex capital goods requiring intensive maintenance by skilled labor. Air traffic control requires a combination of capital goods, skilled labor, and energy to run. This documentary tells of the 30,000 parts that an airport must have on hand to keep the planes from having downtime. At the same airport, the airline runs a separate facility where the jet engines are broken down by skilled mechanics, serviced and rebuilt.  Who Builds the Systems? Is this all going to be done by AI and robots? Computer networks and servers depend on complex supply chains. CPU chips are made mostly in Taiwan, memory chips in South Korea, and hard drives at several places including North America. A single factory to produce semiconductors costs over $1 billion to construct and involves technical expertise from many different fields.  The robotic control grid rests on a base of energy and mining. Robots are made out of metal as are data centers and computers. Energy is extracted from underground deposits of coal, oil, natural gas, and uranium. Once mined metal must be extracted from the rock and formed into bars, pipes, wires or whatever the intended use. Even “green energy” requires enormous amounts of metals. Copper and iron are not so hard to find, but some of the minor metals required for batteries, such as cobalt and niobium are much harder. An operating mine is depleted, and then retired, as minerals are extracted. New deposits must be located and developed. Within the mining industry, there is a division of labor between prospecting for new deposits, building mines, operating mines, and financing them.  Who will operate the control grid? Technology requires skilled labor to operate. AI can only imitate skills that people have already demonstrated. AI models must be trained by operators vetted by humans. Data scientists decide when the training is complete, or, when the model requires retraining. Many decisions are made during this process and it can only be initiated with a goal in mind. Will robots do it all? Who will build them? Where will the metals come from to make them? The power to run them? Who will write the software to control them? The control grid will require a massive amount of skilled labor. People obtain skills by working in the same field – or several different fields – over the course of a career. Most people enter the labor force in their early 20s and many remain for five decades or more. People learn how to do complex things, such as building a semiconductor factory or flying an airplane, by working under more experienced colleagues, and taking on increasingly difficult challenges as they gain experience. Most commercial airline pilots start out with flight training they receive in the military, and from there make the step to short-haul regional carriers with the aspiration of one day sitting in the cockpit of a major airline.  I could go on with my series of examples, but they only illustrate that there is a deeper principle at work here. The wealth that makes technology possible to run the control grid and provide the elites with the good things requires a market economy.  “The economy” – that thing which has an on//off switch, that we could flip for two weeks, and then flip back. Do you remember how, we all dug in, we wore our masks, we socially distanced, we sheltered in place? That curve didn’t know what hit it. We flattened that poor curve’s sorry backside. Then we turned the switch back to the “on” position. Once the economy finished rebooting, we picked up right where we left off. Actually it did not happen that way. In that hallucination, no one lost their business, their home, friends, family relationships, years of their childrens’ education, their careers, or anything else meaningful.  There Is No Switch The production of goods and services is not a machine with a switch. “Economy” is a name for the process by which we all produce things and provide them to others. Not only does this process create cool stuff like mobile phones and air travel, it is what enables us all to stay warm, dry and alive. It is an interconnected network of billions of individual decision-makers, firms, goods in process, capital goods, energy generation, transportation systems, and people who operate them.  The most compelling explanation of the necessity of the market was discovered by the great economist of the Austrian School, Ludwig von Mises. Mises in his 1920 paper examined the problem of central planning. The ownership of all productive capital by the state – socialism – was a popular idea at the time. It was thought by the intellectuals to be inevitable. With ownership comes responsibility. A central planning board would take on the task of planning the entire economy. What should be produced? How much? By whom? To be distributed where?  The starting point is understanding that productive assets are “scarce.” In normal English, scarce means that a good is difficult to find. Economists use the word to mean there are more potential valued uses for the asset than the amount of that asset that currently exists. To use the asset in one way comes at a cost of less of it to use for some other purpose. Any decision that involves using more bricks to build houses means fewer bricks to build walls.  Mises observed that the number of possible uses of all existing capital goods to produce consumer goods and services is unimaginably large. Given the vast numbers of capital goods, skilled workers, known types of consumer goods, and different production processes to create them, the possibilities are almost infinite.  Not only must the choice be made between producing more capital goods and fewer consumer goods, or the opposite, but there is an incalculable variety of choices within each category.  On the capital goods side – do we need more power generation? Should the planner invest in nuclear, coal, natural gas, LNG, or pipelines? Factories? Of what type? Or transportation networks, ports, terminals, or logistics? Do we need more specialized capital goods such as machines that etch circuits into silicon chips, or more general purpose tools like trucks and computers? The planning must look years into the future. The extraction of minerals from the ground and the generation of energy takes years of planning and development so that, when the small business owner needs an iPad, it is available at the local Apple Store.  For consumers, which is better? More shoes and fewer mobile phones? More burgers and better furniture but fewer kitchen sinks and bicycle tires? The number of plans is infinite. There are always entrepreneurs with ideas for goods that do not yet exist, that they would like to bring to market. More production of well known goods means fewer new inventions. Even subsequent generations of the “same product” differ as subtle improvements (or in the case of Microsoft Windows, not-so-subtle retrogressions) are introduced.  Mises asked, how would the central planner decide between alternative uses of productive resources? He startled the economics field with his conclusion: production of goods and services as we know it would be impossible under central planning. In my opinion, Mises’ breakthrough is the greatest and least well known contribution to social sciences in the last century. It sparked a great deal of debate in professional economic circles at the time, but remains to a large extent unknown today outside of scholars.  If central planning is impossible, how is it that we have all the things that we have now? Who decides what to produce? In a market economy – with private ownership of the means of production and a sound monetary system – business firms decide what products they will offer. They are in competition with each other, and they compete with entrepreneurs who would like to enter their markets.  In order to choose between one thing and another, there must be a way to compare alternatives. This is accomplished by what Mises called “economic calculation.” Before starting, expected monetary costs are compared against expected monetary revenues. Profits consist of the differential between realized costs and revenues. Owners in the market economy are looking for profit opportunities. The more profitable opportunities are undertaken, the less profitable or loss-making options are not.  To compare alternatives, profits may be compared to costs using ratios. Financial ratios, such as internal rate of return, or return on equity are dimensionless: they contain monetary units in both the numerator and the denominator. These metrics attempt to capture the economic efficiency of any particular decision. Without a means of comparison, who could say whether society will benefit from more shoes and fewer shirts, or the opposite? Using dimensionless ratios, alternative uses of scarce resources can be compared against each other.  Costs and revenues are always estimated because the full costs of production cannot entirely be known until after production, nor can sales revenues be known until the goods are sold. It may be more (or less) expensive than expected to hire the workers needed, supply chain issues may crop up, a space may open up at a lower than expected rent, demand for the product may be stronger, or weaker. The ability to estimate future costs and prices is a key to success in earning profits.  Awareness, or imagination of what can be produced, how, and with what originates in the diversity of human knowledge, experience, and the way in which all of us are situated differently in the world. Within a business firm there resides an accumulation of knowledge about that industry. That firm may be well positioned to bring new products to market similar to their current product line. The company that makes motorcycles will have a good idea of customer preferences in that market. Someone else may have regional or local knowledge of market conditions. That person notices on his drive to work how far you have to go from his home to a dry cleaner. That local knowledge gives him insight into where a dry cleaner might fill an unmet need.  Prices Must Be Market Prices Market prices are a key to the process. Mises was building on developments in price theory by the Austrian School in the decades prior. It had been discovered a few years before Mises that market prices of capital goods and labor come about because entrepreneurs and business firms are able to place a definite monetary value on each resource that they wish to use in production. Each worker hired, each space rented, each machine or office product purchased, every advertisement purchased, and each gallon of gas used in transport has a specific monetary value to each entrepreneur.  Each business, each entrepreneur must determine the amount they are willing to pay for the labor and assets they plan to use. Their buying prices are based on the way in which the asset contributes to the selling prices they expect. The process of competitive bidding ensures that scarce resources are used by those entrepreneurs and businesses who place the greatest monetary value on their use.  The value of the resource to the business originates in the value that the consumer at the very end of the supply chain places on the final product. Business firms must be able to sell into a consumer market (even if several layers downstream) in order to value their components in the supply chain. At the end, the consumer decides on the trade-offs between more of one thing and less of another through their willingness to buy at a given price. The price system functions as a collaborative system to pool the knowledge, experience and ideas of everyone about how to put available resources to their best use. The price system gives the entrepreneur an idea of how the rest of society values specific economic resources in monetary terms, enabling economic calculation so that production decisions can be made.  Other than the free market economy, sound money, and private property, what alternatives are there for the use of existing finite resources in creating useful things? None. None at all. Mises emphasized that he was not saying that capitalism is a better economic system than socialism. Socialism is not an economic system at all because it does not offer a solution to the problem of how to economize the use of scarce resources. Economic calculation with money prices is the only way that has been discovered to do this.  The elites’ version of the world where Bill and Klaus have nice things with a high tech control grid crushing everyone cannot be built in the form which they imagine. Bill and Klaus cannot possibly make all the stuff they want on their own, even with robots. Their vision does not include economic calculation.  Stuff does not make itself. Making stuff must occur prior to having stuff. Making all the nice things takes a lot of people, and a lot of capital goods. The scale and division of labor required to fill the supply chain for even one complex product, such as a mobile phone, requires economic calculation, which would be abolished as part of their mad plan. To build high tech systems there must be widespread ownership of private property. Private property must be under the control of competing business firms and their investors. Labor must be free to move around, to change jobs, and to acquire skills. And people must be paid competitively determined wages. Wages are prices, which demonstrate the contribution of the worker within the framework of economic calculation. If the dystopian control grid is not possible, what will happen when they try to bring it about? As economist Joseph Salerno wrote, a dedicated attempt at central planning would result in a complete disintegration of human society. We saw the beginnings of this in the massive supply-chain shocks and labor market disruptions in the past two years. We have not seen a full recovery from that brush with disaster. There are pilot shortages, an oncoming food shortage, healthcare worker shortages, and frequent business closures due to staffing issues. Unconstrained Reality Utopian visions wipe the slate of the world clean so that it may be rebuilt perfectly. Grand utopias cannot be realized because, while imagination is unconstrained reality has limits. What is a dystopia other than the role of an NPC in someone else’s utopia? In this case, the utopia is the dream of psychotic elites who imagine that they can have the end products of mass cooperation without the open society that enables it. Much damage can be done in the attempt, but it is only a question of how far it can get before it cancels itself.  Tyler Durden Tue, 01/17/2023 - 16:28.....»»

Category: blogSource: zerohedgeJan 17th, 2023

Macleod: The Evolution Of Credit & Debt In 2023

Macleod: The Evolution Of Credit & Debt In 2023 Authored by Alasdair Macleod via, The evidence strongly suggests that a combined interest rate, economic and currency crisis for the US and its western alliance will continue in 2023. This article focuses on credit, its constraints, and why quantitative easing has already crowded out private sector activity. Adjusting M2 money supply for accumulating QE indicates the degree to which this has driven the US tax base into deep recession. And the wider effects on credit in the economy should not be ignored.  After a brief partial recovery from the covid crisis in US government finances, they are likely to start deteriorating again due to a deepening recession of private sector activity. Funding these deficits depends on foreign inward investment flows, which are faltering. Rising interest rates and an ongoing bear market make funding from this source hard to envisage. Meanwhile, from his public statements President Putin is fully aware of these difficulties, and a consequence of the western alliance increasing their support and involvement in Ukraine makes it almost certain that Putin will take the opportunity to push the dollar over the edge. Credit is much more than bank deposits Economics is about credit, and its balance sheet twin, debt. Debt is either productive, in which case it can extinguish credit in due course, or it is not, and credit must be extended or written off. Money almost never comes into it. Money is distinguished from credit by having no counterparty risk, which credit always has. The role of money is to stabilise the purchasing power of credit. And the only legal form of money is metallic; gold, silver, or copper usually rendered into coin for enhanced fungibility. Credit is created between consenting parties. It facilitates commerce, created to circulate existing commodities, and to transform them into consumer goods. The chain of production requires credit, from miner, grower, or importer, to manufacturer, wholesaler, retailer and customer or consumer. Credit in the production chain is only extinguished when the customer or consumer pays for the end product. Until then, the entire production chain must either have money or arrange for credit to pay for their inputs.  Providers of this credit include the widest range of economic actors in an economy as well as the banks. When we talk of the misnamed money supply as the measure of credit in an economy, we are looking at the tip of an iceberg, leading us to think that debt in the form of bank notes and deposit accounts owed to individuals and businesses is the extent of it. Changes in the banking sector’s risk appetite drive a larger change in unrecorded credit conditions. We must accept that changes in the level of officially recognised debt are merely symptomatic of larger changes in payment obligations in the economy.  The role of credit is not adequately understood by economists. Keynes’s General Theory has only one indexed reference to credit in the entire book, the vade mecum for all macroeconomists. Even the title includes “money” when it is actually all about credit. Von Mises expounds on credit to a considerable degree in his Human Action, but this is an exception. And even his followers today are often unclear about the distinction between money and credit. Economists and commentators have begun to understand that credit is not limited to banks, by admitting to the existence of shadow banking, a loose definition for financial institutions which do not have a banking licence but circulate credit. The Bank for International Settlements which monitors shadow banking appears to suspect shadow banks of creating credit without the requirement of a banking licence. There appears to be a confusion here: the BIS’s starting point is that credit is the preserve of a licenced bank. The mistake is to not understand the wider role of non-bank credit in economic activity. But these institutions, ranging from insurance companies and pension funds to various forms of financial intermediaries and agents, unconsciously create credit by allowing time to elapse between a commitment giving rise to an obligation, and its settlement. Even next day settlement is a debt obligation for a buyer, or credit extended by a seller. Delivery against settlement is a credit obligation for both parties in a transaction. Futures, forwards, and options are credit obligations in favour of a buyer, which can be traded. And when a broker insists a client must have a credit in his account before investing, or to deliver securities before selling, credits and obligations are also created. Therefore, credit has the same effect as money (which is very rarely used) in every transaction, financial or non-financial. All the debts in the accounts of businesses are part of the circulating medium in an economy, including bills of exchange and other tradable obligations. And at each transfer a new credit, debt, or right of action is created, while others are extinguished. A banking system provides a base for further credit expansion because all credit transactions are ultimately settled in bank notes, which are an obligation of the note issuer (in practice today, a central bank) or through the novation of a bank deposit, being an obligation of a commercial bank. Banks are simply dealers in credit. As such, they facilitate not just their own dealings, but all credit creation and expunction.  The reason for making the point about the true extent of credit is that it is a mistake to think that the statistical expansion, or contraction of it, conventionally measured by the misnamed money supply, is the true extent of a change in outstanding credit. Central banks in particular act as if they believe that by influencing the height of the visible tip of the credit iceberg, they can simply ignore the consequences for the rest.  It is also worth making this point so that we can assess how the economies of the western alliance will fare in the year ahead — the American-led NATO and other nations adhering to its sphere of influence. With signs of bank credit no longer expanding and, in some cases, contracting, and with price inflation continuing at destructive levels and a recession threatened, it is rarely so important to understand credit and its role in an economy.  We also need to have a true understanding of credit to assess the prospects for China’s economy, which appears to be set on a different course. Emerging from lockdown and in the light of favourable geopolitical developments while the western alliance is tipping into recession, the prospects for China’s economy are rapidly improving. Interest rates in 2023 That the long-term trend of declining interest rates for the major fiat currencies over the last four decades came to an end in 2021 is now beyond question. That this trend fostered a continuing appreciation of asset values is fundamental to an understanding of the consequences. And that the expansion of bank credit supporting a widening plethora of financial credit has stopped, is now only beginning to be register. If we look at the quarterly rate of change in US M2 money supply, this is now evident. Since the Bretton Woods agreement was abandoned in 1971, there has not been as severe a contraction of US dollar bank credit as witnessed today. It follows a massive covid-related spike when the US Government’s budget deficit soared. And its rise and fall is contemporaneous with a collapse in government revenues and soaring welfare costs. In fiscal 2020 (to end-September), the Federal Government’s deficit was $3.312 trillion, compared with revenue of $3.42 trillion. It meant that spending was nearly twice tax income. Some of that excess expenditure was helicoptered directly into citizens’ bank accounts. The rest was reflected in bank balances as it was spent into public circulation by the government. Furthermore, from March 2020 the Fed commenced QE at the rate of $120bn per month, adding a total of $2.6 trillion in bank deposits by the end of fiscal 2021.  Deflating M2 by QE to get a feel for changes in the aggregate level of bank deposits strictly related to private sector origination tells us that private sector related credit was already contracting substantially in fiscal 2020—2021. This finding is consistent with an economy which suffered a suspension of much activity. This is illustrated in our next chart, taken from January 2020. In this chart, accumulating QE is subtracted from official M2 to derive the red line. In practice, one cannot make such a clear distinction, because QE credit goes directly into the financial sector, which is broadly excluded from the GDP calculation. Nevertheless, QE inflates not just commercial bank reserves at the Fed, but their deposit liabilities to the insurance companies, pension funds, and other members of the shadow banking group. A minor portion of QE might relate to the commercial banks themselves, which for practical purposes can be ignored. Through QE, state-origination of credit effectively crowds out private sector-origination of credit. A Keynesian critic might dismiss this on the basis that he believes QE stimulates the wider economy. That may be true when a monetary stimulus is first applied, since it takes time for market prices to adjust to the extra quantity of credit. Furthermore, QE stimulates financial market values and not the GDP economy, only affecting it later in a roundabout way. But when QE eventually leaks out into the wider economy, it leads to higher prices for consumer goods, confirmed by the dramatic re-emergence of consumer price inflation. Furthermore, regulated banks are limited in their ability to create credit by balance sheet constraints, so to accommodate QE they are necessarily restricted in their credit creation for private sector borrowers. Given the far larger quantities of non-bank credit which depend for its facilitation on bank credit, the negative impact on the economy of banks becoming risk averse is poorly understood. It is ignored on the assumption that state-origination of credit through budget deficits stimulates economic activity. What is less appreciated is that QE has already driven the non-government portion of the US economy into a deepening recession, yet to be reflected in government statistics. Furthermore, that the extra credit burden on the commercial banking system has exceeded their collective balance sheet capacity is confirmed by the Fed’s reverse repo facility, which offers deposit facilities additional to the commercial banking system. Currently standing at $2.2 trillion, it represents the bulk of excess credit created by QE since March 2020. Adjusted for QE, the falling level of private sector deposits in the M2 statistic is consistent with an economic slump, only concealed statistically by the expansion of state spending and the loss of the dollar’s purchasing power. The economic distortions arising from QE are not restricted to America but are repeated in the other advanced economies as well. The only offset to the problem is an increase in private sector savings at the expense of immediate consumption and the extent to which they absorb increasing government borrowing. That way, the consequences for price inflation would have been lessened. But in America, much of the EU, and the UK, savings have not increased as a proportion of GDP, so there has been little or no savings offset to soaring budget deficits. A funding crisis is in the making Returning to the US as our primary example, we can see that national monetary statistics are concealing a slump in economic activity in the “real economy”. This real economy represents the state’s revenue base. On its own, this is going to lead to higher government borrowing than expected by forecasters as tax revenues fall and welfare commitments rise. And interest expense, already estimated by the Congressional Budget Office to cost $442bn in the current fiscal year and $525bn in fiscal 2024, are bound to be significantly higher due to unbudgeted extra borrowing. Officialdom still assumes that a recession will be mild and brief. Consequently, the CBO’s calculations are unrealistic in what is clearly an unfolding economic slump given the evidence from bank credit. Even without considering additional negative factors, such as bankruptcies and bank failures which always attend a deep recession, borrowing cost estimates are almost certainly going to be far higher than currently expected. In addition to domestic spending, the western alliance appears to be stepping up its war in Ukraine against Russia. US Defence spending is already running at nearly $800bn, and that can be expected to escalate significantly as the conflict in Ukraine worsens. The CBO’s estimate for 2024 is an increase to $814bn; but in the face of a more realistic assessment of an escalation of the Ukraine conflict since the CBO forecast was made last May, the outturn could easily be over $1,000bn.  To the volume of debt issuance must also be added variations in interest cost. Bond investors currently tolerate negative yields in the apparent belief that falling consumer demand in a recession will reduce the tendency for consumer prices to rise. This is certainly the official line in all western central banks. But as we have seen, this “transient inflation” argument has had its timescale pushed further into the future as reality intervenes.  This line of thinking, which is based on interpretations of supply and demand curves, ignores the plain fact that a general fall in consumption is tied irrevocably to a general fall in production. It also ignores the most important variable, which is the purchasing power of a fiat currency. It is the loss of purchasing power, which is primarily reflected in the consumer price index following the dilution of the currency by its debasement. In the absence of a sheet anchor tying credit values to legal money there is the thorny question of its users’ confidence being maintained in it as the exchange medium. Should that deteriorate, not only have we yet to see the consequences of earlier QE work their way through to undermining the dollar’s purchasing power, but the cost of government borrowing is likely to remain higher and for longer than official forecasts assume.  Funding difficulties are ahead We can now identify sources of ongoing credit inflation, which at the least will serve to continue to undermine the dollar’s purchasing power and ensure that a rising trend for interest rates will continue. This conclusion is markedly different from expectations that the current catalogue of problems facing the US authorities amounts to a series of one-off factors that will diminish and disappear in time. We can see that in common with the Eurozone, Japan, and the UK, the US financial system will be required to come up with rising levels of credit to fund government debt, the consequence of continuing high levels of budget deficits. Furthermore, after a brief respite from the exceptional levels of deficits over covid, there is every likelihood that these deficits will increase again, particularly in the US, UK, and the PIGS grouping in the Eurozone. Not only do these nations have a problem with budget deficits, but they have trade deficits as well. This is bad news particularly for the dollar and sterling, because both currencies are overly dependent on inward capital flows to balance their governments’ books. It is becoming apparent that with respect to credit policies, the authorities in America (and the UK) are faced with mounting funding difficulties to resolve. We can briefly summarise them as follows: Though they have yet to admit it, despite all the QE to date the evidence of a gathering recession is mounting. It has only served to conceal a deteriorating economic condition. The Fed is prioritising tackling rising consumer prices for now, claiming that that is the immediate problem. Along with the US Treasury, the Fed still claims that inflation is transient. This claim must continue to have credibility if negative real yields in bond markets are to endure, a situation which cannot last for very long. Monetary stimulus is confined by a lack of commercial banking balance sheet space. Further stimulation through QE will come up against this lack of headroom.  With early evidence of a declining foreign appetite for US Treasuries, it could become increasingly difficult to fund the government’s deficits, as was the case in the UK in the 1970s. This author has vivid recollections of a similar situation faced by the UK’s monetary authorities between 1972—1975. In those days, the Bank of England was instructed in its monetary policy by the Treasury, and often its market related advice was overridden by Treasury mandarins lacking knowledge of financial markets. During the Barbour boom of 1971—1972, the Bank suppressed interest rates and encouraged the inflation of credit. Subsequently, price inflation started to rise and interest rates belatedly followed, always reluctantly conceded by the authorities. This rapidly became a funding crisis for the government. The Treasury always tried to issue gilt-edged stock at less than the market was prepared to pay. Consequently, sterling’s exchange rate would come under pressure, and with a trend of rising consumer prices continuing, interest rates would have to be raised to get the gilt issue of the day subscribed. Having reflected a deteriorating situation, bond yields then fell when it was momentarily resolved. The crunch came in Autumn 1973, when the Bank of England’s minimum lending rate was increased from 9% on 26 July in steps to 13% on 13 November. A banking crisis suddenly ensued among lenders exposed to commercial property, and a number of banks failed. This episode became known as the secondary banking crisis. As bond yields rose, stock markets crashed, with the FT30 Share Index falling from 530 in May 1972, to 140 in January 1975. The listed commercial property sector was virtually wiped out. In an air of crisis, inept Treasury policies continued to contribute to a growing fear of runaway inflation. Long maturity gilt issues bore coupons such as 15 ¼% and 15 ½%. And finally, in November 1976, the IMF bailed Britain out with a $3.9bn loan.  Today, these lessons for the Fed and holders of dollar denominated financial assets are instructive. Future increases in interest rates were always underestimated, and as the error became apparent bond yields rose and equities fell. While the Fed is notionally independent from the US Treasury, the Federal Open Market Committee’s approach to markets is one of control, which was not so much shared by the Bank of England in the 1970s but reflected the anti-market Keynesian view of the controlling UK Treasury.  In common with all other western central banks today, official policy at the Fed is to deny that price inflation is related to the quantity of credit. It is rare that money or credit in the context of a circulating medium is even mentioned in FOMC policy statements. Instead, interest rate setting is the dominant theme. And there is no acknowledgement that interest rates are primarily compensation to depositors for loss of purchasing power — a dangerous error when national finances are dependent on foreigners buying your treasury bonds.  Foreign ownership of dollars and dollar assets In the 1970s, sterling’s troubles were compounded by a combination of trade deficits and Britain’s dependence on inward (foreign) investment. In short, the nation was, and still is savings deficient. Consequently, at the first sign of rising interest rates foreign holders recognised that the UK government would drag its heels at accepting reality. They would turn sellers leading to perennial sterling crises. Today, the dollar has been protected from this fate because of its status as the world’s reserve currency. Otherwise, it shares the same characteristics as sterling in the 1970s — twin deficits, reliance upon foreign investment, and rising yields on government bonds.  According to the US Treasury’s TIC statistics, in the 12 months to September last, foreign holders purchased $846bn long-term securities. Breaking these figures down, private sector foreigners were net buyers, while foreign governments were net sellers. This reflects the difference between the trade deficit and the balance of payments: in other words, importers were retaining and investing most of their dollar payments on a net basis. Table 1 shows the most recent position. Over the last year, the total value of foreign long-term and short-term investments in dollars (including bank deposits) fell by $3.531 trillion to $30.270 trillion. $2.532 trillion of this decline was in equity valuations, and with the recent rally in equity and bond markets, there will be some recovery in these numbers. But they are an indication of market and currency risks assumed by foreign holders of these assets if US bond yields start to rise again. And here we must also consider relative currency attractions. The decline of the petrodollar and rise of the petroyuan It is in this context that we must view Saudi Arabia’s move to replace petrodollars with petroyuan. Through its climate change policies, the western alliance against the Asian hegemons has effectively told its oil and natural gas supliers in the Gulf Cooperation Council that their carbon fuel products will no longer be welcome in a decade’s time. It is therefore hardly surprising that the Middle East sees its future trade being with China, along with her associates in the Shanghai Cooperation Organisation, the Eurasian economic Union, and the BRICS. Saudi Arabia has indicated her desire to join BRICS. Along with Egypt, Qatar, Emirates, Kuwait, and Bahrain, Saudi Arabia are also on the list to become dialog partners of the SCO.  Binding the membership of the SCO together is China’s plans to accelerate a communications and industrial revolution throughout Asia, and with a savings rate of 45% she has the capital available to invest in the necessary projects without undermining her currency. While America stagnates, China’s economy will be powering ahead. There are further advantages to China’s plans with respect to the security and availability of cheap energy. While the Asians pay lip service to the western alliance’s insistence that fossil fuels must be reduced and then eliminated, in practice SCO members are still building coal-fired power stations and increasing their demand for all forms of fossil fuel. Members, associates, and dialog partners of the SCO, representing over 40% of the world’s population now include all the major oil and gas exporters in Asia. The economic consequences are certain to impart significant advantages to China and her industrialisation plans, compared with the western alliance’s determination to starve itself of energy. While it will take some time for the Saudis to fully declare the petrodollar dead, the signal that she is prepared to accept petroyuan is an important one with more immediate consequences. We can be sure that besides geopolitical imperatives, the Saudis will have analysed the relative prospects between the two petro-currencies. They appear to have concluded that the risk of loss of the yuan’s purchasing power is at least no greater than that of the dollar. And if the Saudis are arriving at this conclusion, we can assume that other Asian governments holding dollars in their reserves will as well. Russia is likely to stir the currency pot With the western alliance increasing its support and involvement in the Ukraine proxy war, the military pressure on Russia is mounting. If President Putin has learned anything, it should be that military attempts to secure Eastern Ukraine carry a high risk of failure. Furthermore, with the alliance bringing more lethal weaponry to bear on his army, his prospects of military success are declining. Compounding his military problems is the recent decline in oil and gas prices, particularly of the latter which has taken the energy squeeze off the EU. There can be little doubt that the greater these negative factors become, the greater the pressure on Putin to resort to a financial solution. Putin’s strategy is likely to be simple and has already been telegraphed in his speech to the delegates at the St Petersburg Economic Forum last June. In short, he understands the weakness for the dollar’s position and by extension those of the other alliance currencies. Ideally, a cold snap in Middle and Eastern Europe will help lift oil and gas prices, increasing the prospects for price inflation, thereby bringing renewed pressure for interest rates in the alliance currencies to rise. This will lead to renewed losses on US and EU bonds, further falls in equities, and therefore dollar liquidation by foreigners. The eventual outcome of Triffin’s dilemma, a final crisis for the reserve currency, is certainly in the wings. With the situation in Ukraine likely to escalate, Putin can ill afford to delay. On another front, he has authorised Russia’s National Wealth Fund to invest up to 60% in Chinese yuan and 40% in physical gold. This is probably a move to protect the fund from Putin’s view of future currency trends and from their declining value in gold. It is consistent with what the Saudis are doing with respect to getting out of dollars into yuan, and probably some gold bullion through the Shanghai International Gold Exchange. If this demand for gold extends beyond both Russia and Saudi Arabia, then the mechanism for dollar destruction could be accelerating demand for gold from multiple governments and entities in the Russian Chinese axis. Tyler Durden Sat, 01/14/2023 - 17:30.....»»

Category: dealsSource: nytJan 14th, 2023

Rikers expert says Allen Weisselberg will get better treatment as a prominent Trump supporter

Allen Weisselberg will fare better at NYC's notorious jail because he's 75 and Trump's ex-CFO — but it'll still be hell, an expert tells Insider. This New York City Board of Correction photo shows prisoners carrying an unresponsive individual down stairs in a Rikers Island cell block to get help.NYC Board of Correction Trump's ex-CFO, Allen Weisselberg, was sentenced Tuesday to five months in NYC's Rikers jail complex. Rikers guards love Trump and will give better treatment to Weisselberg, 75, one expert predicts. But the executive-turned-tax-felon will still find Rikers' chaos and filth to be hellish, he said. Most Rikers guards are big fans of Donald Trump — so the former president's longtime top money man, Allen Weisselberg, will likely get preferential treatment as he starts his five month stint at New York City's notorious jail complex, an expert told Insider on Tuesday.Being 75 years old and in the news will also help Weisselberg, predicted the expert, Five Mualimmak-Ak, a jail-reform activist and former detainee who visits Rikers frequently."Ninety-percent of the guards are Trump supporters, even though most of them are Black and Latino women," because of the former president's pro-law-and-order beliefs, said Mualimmak-Ak, program director for LIFE Camp, a city-based nonprofit.The city's former correction officer's union head, Norman Seabrook, was vocally pro-Trump during the 2016 presidential campaign."So he'll get preferential treatment from the guards because he is a Trump supporter. They'll try to protect him," said Mualimmak-Ak, whose program helps youth and families impacted by violence. "They'll treat him with a little more dignity." Still, Weisselberg's days in Rikers will be hellish, he said, calling the 6,000-inmate facility filthy, chaotic, and plagued by gang violence and drug use.Weisselberg himself was concerned enough about the sentence to hire a "jail coach," a consultant who can help him get through the ordeal safely.Last year, 19 died in custody, many from suicide or suspected overdoses, according to Gothamist. Advocates and news accounts  last year documented understaffing and inmates gone wild, including a New York Times account of gangs forcing detainees to participate in "fight nights.""It's a very brutal environment,' Mualimmak-Ak said. "It's horrible, deplorable conditions."Located on an island in the East River between Queens and the Bronx, Rikers houses detainees awaiting trial and persons serving sentences of under one year.Weisselberg was sentenced Tuesday for his admitted role in masterminding a decade-long payroll tax-dodge scheme at the Trump Organization, the former president's real estate and golf resort business. Trump's finance chief since the 1980s, Weisselberg saved $900,000 in personal income taxes — and helped other second-tier executives save hundreds of thousands of dollars more — by systematically hiding income from city, state, and federal tax authorities.He described the complicated fraud scheme in three days on the witness stand last month, in testimony that was crucial to convicting the Trump Organization on tax fraud but which never implicated Trump himself.Weisselberg's first stop at Rikers on Tuesday will be the intake section of the Eric M. Taylor Center, according to the ex-CFO's jail coach, Craig Rothfeld.Built in 1964, it's the facility's oldest jail building; only the 1932 original Rikers Island Hospital, still in use as an infirmary, is older, according to the city Department of Correction.Weisselberg will have traveled in a correction van or bus from his sentencing at New York State Supreme Court in Manhattan to Rikers, still in his civilian clothes but with his wrists and legs shackled, Mualimmak-Ak said.At "EMTC," as the Eric M. Taylor Center is known, Weisselberg will be fingerprinted, and he'll trade in his suit for regulation tan pants and white T-shirt. "Your belt, your socks, your shoelaces, all of that stuff is taken from you because it could be instruments of harm," he said. "They'll strip him down to his underwear."Then, "You sort of sit there in a cage until they process your paperwork."He'll share the intake waiting cell with 50 to 100 other detainees for days, even a week, Mualimmak-Ak said, until more permanent housing is assigned.Typically, a single guard will supervise the intake cell. "There's a phone, it just doesn't work," he added. "There's a toilet, it just doesn't work. There's a sink, it just doesn't work." Eventually, someone like Weisselberg — who has been in the news and is up in years — will likely be given an individual, 6-by-9 cell in a cell block, rather than being housed in an open-dorm setting, Mualimmak-Ak predicted.Weisselberg's jail coach, Craig Rothfeld, also predicted that Weisselberg will not be housed in an open dorm, telling Insider recently that the dorms are especially plagued by gang violence.A cell block will house around 100 detainees, and will have a common area with a television and two guards posted,  Rothfeld and Mualimmak-Ak said.One — the "B-man" — is inside with the detainees. The other is "in a bubble, a Plexiglass station. So if there's a fight, someone being stabbed, someone hanging themselves, that's who's there," Mualimmak-Ak said.Only once he's moved out of intake will he be able to get visitors, Mualimmak-Ak said.Throughout his stay, Weisselberg will get three meals a day, all brought to him in his cell and almost all of them served cold."One day will be pasta salad. Or two cheese pirogi's. You do get a franks-and-beans meal on Fridays, though a lot of time the hot dogs are green, unfortunately. "You also get this one fish and cheese patty on Friday nights, with two pieces of bread, and a thing of 1% milk," he said."Most of the food is frozen and defrosted," and it's cooked in another building, he added."You do get fried chicken once a month — you get one chicken leg. And green beans. That's it."Mualimmak-Ak has testified before the city Board of Correction, and said Tuesday that he hopes Weisselberg's high-profile stay will call attention to what he and other advocates call Rikers' inhumane and dangerous conditions."I do hope the best for him, and I hope he speaks out about the conditions or his process, because there's not enough voices." The department works to create a safe and supportive environment for everyone in custody, James Boyd, deputy commissioner for public information for the city Department of Correction, said in a statement Monday."The health and safety of our staff and every individual in our custody is paramount to us," he said, adding that no one gets preferential treatment. "Every individual who enters DOC's custody is housed in accordance with our policies," he said.Read the original article on Business Insider.....»»

Category: personnelSource: nytJan 10th, 2023

Noncompete Clauses Could Be Banned in the U.S. What to Do If You Have One

The FTC has proposed banning noncompete clauses. Some 30 million workers are subject to a noncompete, but there are ways to get around them. The Federal Trade Commission (FTC) has proposed a new regulation that would block companies from forcing employees to sign noncompete clauses that threaten legal action if they join a competitor or start their own competing business. Roughly 30 million people—about one in five American workers—are bound to noncompete clauses across a variety of jobs, including hairstylists, doctors, and even sandwich makers. These workers are often forced to remain in their current jobs, which may pay less than other companies, or risk being shut out of their industry altogether. [time-brightcove not-tgx=”true”] The FTC rule, proposed on Jan. 5, could have massive ramifications for the U.S. economy, raising wages and increasing competition among businesses, economists say. “Noncompetes are basically locking up workers, which means that they’re not able to match with the best jobs for them,” FTC Chair Lina Khan said on a call with reporters. “If this rule were to be finalized and go into effect…[it] would force employers to compete more vigorously over workers in ways that should lead to higher wages and improved working conditions, basically injecting competition into the labor market.” Job applicants and current employees can take a number of steps to ensure they don’t become shackled to a noncompete agreement they may later regret. The short answer is to negotiate with your employer during the hiring or promotion process and read the fine print carefully before signing a binding contract. “It’s important to know your rights,” says Aaron Bibb, an employment lawyer at Hawks Quindel who regularly represents workers in employment disputes. “A lot of times companies don’t even care whether noncompetes are legally enforceable or not—it’s the threat of enforcement that really gives them their power.” Here are some tips on what to do if you’re subject to a noncompete agreement. Understand the consequences Economists say the growth of noncompete agreements in recent years is part of a broad shift in which companies assert ownership over work experience. Dylan Ilvento recalls reading through his contract for a college internship at an app developer when he noticed something strange: The contract included a two-year noncompete agreement that would prevent him from leaving his internship for a competitor. These provisions have long been routine among senior executives who may possess trade secrets, but Ilvento never imagined having to sign one as a low-wage college intern. “I was given the contract to sign on my first day of work, so I was definitely blindsided by it,” Ilvento, now 31, tells TIME of his experience. “I asked my manager about it and they just fed me a very nonchalant ‘it’s standard in the industry’ line.” Ilvento signed the contract, though he now says he didn’t understand at the time that it could have stopped him from finding better work in the future. He ended up interviewing with some competitors of the company, but got lucky that it did not stop him from getting a job. “It did bring me a lot of stress,” he says. He urges anyone asked to sign a noncompete agreement to carefully weigh the pros and cons, and to get in writing what the organization considers its competitors to prevent a lawsuit. Find leverage to negotiate Some job applicants may be able to negotiate with their employers to remove noncompete language from their contract. Typically, only high-level recruits or in-demand applicants will be able to negotiate the terms of their contract, but employment lawyers say it’s worth a shot for anyone whose employer wants to tie them to a noncompete agreement. “Employees don’t always think about these things when they’re hired because they might feel like they’re going to be there forever,” Bibb says. “But if you’re going into a job where you have any leverage for negotiation, noncompete agreements can be negotiated. Whether the employer is willing to negotiate is another question.” Even if an employee is currently entered into a noncompete agreement, it might not be too late. Peter Rahbar, an employment lawyer who helped advocate for the ban of noncompetes for lower income workers in New York, says employees could also try negotiating on their way out of a job. “Employees might be told on their way in that noncompetes are standard and if they change it for you they have to change it for everybody,” he says, “but what ends up happening is you can negotiate on the way out too.” Employees may be able to add specific exceptions to their noncompete agreements if they ask, particularly with respect to geography or time frame. For instance, a hair salon may be willing to allow employees to leave for a competitor if it’s located more than 50 miles away or in a different state. Consult an attorney Employees can also take legal action to fight noncompete agreements. Some states have rules that limit the scope of noncompetes. California has a complete ban on the clause. Consulting an attorney can help employees better understand their rights and the terms of their contract, Bibb says. “We do a lot of consultations with folks who want an attorney to review their noncompete and give them advice on what’s the likelihood of the employer taking action and being successful,” he says. Some employers might not enforce the policy strictly—such as a sandwich shop that pays minimum wage—but it’s common for tech companies to take employees to court if they join a competitor despite signing a noncompete agreement, particularly if trade secrets are involved. A noncompete agreement can sometimes also have a financial component attached to it. Employers may attach significant stock grants or another compensation opportunity to the contract, and those who leave for a competitor risk losing that money. But taking legal action can be expensive and potentially harmful to your career—trapping you in a lose-lose situation. Prospective employers are more likely to hire candidates who aren’t bound by a noncompete agreement due to the possibility of legal action. “It becomes an obstacle for a lot of workers trying to move,” Rahbar says. Bibb adds: “A lot of times, if you have to go to court you’ve already lost because you have to pay an attorney. And you might cause a big kerfuffle with your new job. They might decide it’s more trouble than it’s worth to bring you on.” Submit a public comment to the FTC While the FTC has taken a firm stance on noncompetes, the prospect of a ban has been met with resistance from some parts of the business community. Experts say the regulatory process could also get delayed by legal challenges. Matt Kent, a competition policy advocate with the government watchdog group Public Citizen, says that workers who support the ban on noncompete agreements should share their experiences with the FTC, particularly if they have been negatively affected by the clause. “It’s very important that people tell their stories to the FTC to really strengthen their resolve and make it clear there’s a real reason for these rules,” he says. “And it’s pretty easy to do it, so people should definitely take part in the Democratic aspect of the regulatory process.” The public will be allowed to submit comments on the proposal via the FTC’s website for 60 days, at which point the commission will review the comments, make changes and finalize the rule. It would then take effect 180 days later—unless there are legal challenges......»»

Category: topSource: timeJan 9th, 2023

An Age Of Decay

An Age Of Decay Authored by Chris Buskirk via, This essay is adapted from "America and the Art of the Possible: Restoring National Vitality in an Age of Decay," by Chris Buskirk (Encounter, 192 pages, $28.99) The fact that American living standards have broadly stagnated, and for some segments of the population have declined, should be cause for real concern to the ruling class... America ran out of frontier when we hit the Pacific Ocean. And that changed things. Alaska and Hawaii were too far away to figure in most people’s aspirations, so for decades, it was the West Coast states and especially California that represented dreams and possibilities in the national imagination. The American dream reached its apotheosis in California. After World War II, the state became our collective tomorrow. But today, it looks more like a future that the rest of the country should avoid—a place where a few coastal enclaves have grown fabulously wealthy while everyone else falls further and further behind. After World War II, California led the way on every front. The population was growing quickly as people moved to the state in search of opportunity and young families had children. The economy was vibrant and diverse. Southern California benefited from the presence of defense contractors. San Diego was a Navy town, and demobilized GIs returning from the Pacific Front decided to stay and put down roots. Between 1950 and 1960, the population of the Los Angeles metropolitan area swelled from 4,046,000 to 6,530,000. The Jet Propulsion Laboratory was inaugurated in the 1930s by researchers at the California Institute of Technology. One of the founders, Jack Parsons, became a prominent member of an occult sect in the late 1940s based in Pasadena that practiced “Thelemic Magick” in ceremonies called the “Babalon Working.” L. Ron Hubbard, the founder of Scientology (1950), was an associate of Parsons and rented rooms in his home. The counterculture, or rather, countercultures, had deep roots in the state. Youth culture was born in California, arising out of a combination of rapid growth, the Baby Boom, the general absence of extended families, plentiful sunshine, the car culture, and the space afforded by newly built suburbs where teenagers could be relatively free from adult supervision. Tom Wolfe memorably described this era in his 1963 essay “The Kandy-Colored Tangerine Flake Streamline, Baby.” The student protest movement began in California too. In 1960, hundreds of protesters, many from the University of California at Berkeley, sought to disrupt a hearing of the House Un-American Activities Committee at the San Francisco City Hall. The police turned fire hoses on the crowd and arrested over thirty students. The Baby Boomers may have inherited the protest movement, but they didn’t create it. Its founders were part of the Silent Generation. Clark Kerr, the president of the UC system who earned a reputation for giving student protesters what they wanted, was from the Greatest Generation. Something in California, and in America, had already changed. California was a sea of ferment during the 1960s—a turbulent brew of contrasting trends, as Tom O’Neill described it:  The state was the epicenter of the summer of love, but it had also seen the ascent of Reagan and Nixon. It had seen the Watts riots, the birth of the antiwar movement, and the Altamont concert disaster, the Free Speech movement and the Hells Angels. Here, defense contractors, Cold Warriors, and nascent tech companies lived just down the road from hippie communes, love-ins, and surf shops. Hollywood was the entertainment capital of the world, producing a vision of peace and prosperity that it sold to interior America—and to the world as the beau ideal of the American experiment. It was a prosperous life centered around the nuclear family living in a single-family home in the burgeoning suburbs. Doris Day became America’s sweetheart through a series of romantic comedies, but the turbulence in her own life foreshadowed America’s turn from vitality to decay. She was married three times, and her first husband either embezzled or mismanaged her substantial fortune. Her son, Terry Melcher, was closely associated with Charles Manson and the Family, along with Dennis Wilson of the Beach Boys—avatars of the California lifestyle that epitomized the American dream.  The Manson Family spent the summer of 1968 living and partying with Wilson in his Malibu mansion. The Cielo Drive home in the Hollywood Hills where Sharon Tate and four others were murdered in August 1969 had been Melcher’s home and the site of parties that Manson attended. The connections between Doris Day’s son, the Beach Boys, and the Manson Family have a darkly prophetic valence in retrospect. They were young, good-looking, and carefree. But behind the clean-cut image of wholesome American youth was a desperate decadence fueled by titanic drug abuse, sexual outrages that were absurd even by the standards of Hollywood in the 60s, and self-destructiveness clothed in the language of pseudo-spirituality. The California culture of the 1960s now looks like a fin-de-siècle blow-off top. The promise, fulfillment, and destruction of the American dream appears distilled in the Golden State, like an epic tragedy played out against a sunny landscape where the frontier ended. Around 1970, America entered into an age of decay, and California was in the vanguard.   H. Abernathy/ClassicStock/Getty Images Up, Up, and Away The expectation of constant progress is deeply ingrained in our understanding of the world, and of America in particular. Some metrics do generally keep rising: gross domestic product mostly goes up, and so does the stock market. According to those barometers, things must be headed mostly in the right direction. Sure there are temporary setbacks—the economy has recessions, the stock market has corrections—but the long-term trajectory is upward. Are those metrics telling us that the country is growing more prosperous? Are they signals, or noise? There is much that GDP and the stock market don’t tell us about, such as public and private debt levels, wage trends, and wealth concentration. In fact, during a half-century in which reported GDP grew consistently and the stock market reached the stratosphere, real wages have crept up very slowly, and living standards have flatlined or even declined for the middle and working classes. Many Americans have a feeling that things aren’t going in the right direction or that the country has lost its societal health and vigor, but aren’t sure how to describe or measure the problem. We need broader metrics of national prosperity and vitality, including measures of noneconomic values like family stability or social trust. There are many different criteria for national vitality. First, is the country guarded against foreign aggression and at peace with itself? Are people secure in their homes, free from government harassment, and safe from violent crime? Is prosperity broadly shared? Can the average person get a good job, buy a house, and support a family without doing anything extraordinary? Are families growing? Are people generally healthy, and is life span increasing or at least not decreasing? Is social trust high? Do people have a sense of unity in a common destiny and purpose? Is there a high capacity for collective action? Are people happy? We can sort quantifiable metrics of vitality into three main categories: social, economic, and political. There is a spiritual element too, which for my purposes falls under the social category. The social factors that can readily be measured include things like age at first marriage (an indicator of optimism about the future), median adult stature (is it rising or declining?), life expectancy, and prevalence of disease. Economic measures include real wage trends, wealth concentration, and social mobility. Political metrics relate to polarization and acts of political violence.  Many of these tend to move together over long periods of time. It’s easy to look at an individual metric and miss the forest for the trees, not seeing how it’s one manifestation of a larger problem in a dynamic system. Solutions proposed to deal with one concern may cause unexpected new problems in another part of the system. It’s a society-wide game of whack-a-mole. What’s needed is a more comprehensive understanding of structural trends and what lies behind them. From the founding period in America until about 1830, those factors were generally improving. Life expectancy and median height were increasing, both indicating a society that was mostly at peace and had plentiful food. Real wages roughly tripled during this period as labor supply growth was slow. There was some political violence. But for decades after independence, the country was largely at peace and citizens were secure in their homes. There was an overarching sense of shared purpose in building a new nation.  Those indicators of vitality are no longer trending upward. Let’s start with life expectancy. There is a general impression that up until the last century, people died very young. There’s an element of truth to this: we are now less susceptible to death from infectious disease, especially in early childhood, than were our ancestors before the 20th century. Childhood mortality rates were appalling in the past, but burying a young child is now a rare tragedy. This is a very real form of progress, resulting from more reliable food supplies as a result of improvements in agriculture, better sanitation in cities, and medical advances, particularly the antibiotics and certain vaccines introduced in the first half of the 20th century. A period of rapid progress was then followed by a long period of slow, expensive improvement at the margins. When you factor out childhood mortality, life spans have not grown by much in the past century or two. A study in the Journal of the Royal Society of Medicine says that in mid-Victorian England, life expectancy at age five was 75 for men and 73 for women. In 2016, according to the Social Security Administration, the American male life expectancy at age five was 71.53 (which means living to age 76.53). Once you’ve made it to five years, your life expectancy is not much different from your great-grandfather’s. Moreover, Pliny tells us that Cicero’s wife, Terentia, lived to 103. Eleanor of Aquitaine, queen of both France and England at different times in the 12th century, died a week shy of her 82nd birthday. A study of 298 famous men born before 100 B.C. who were not murdered, killed in battle, or died by suicide found that their average age at death was 71. More striking is that people who live completely outside of modern civilization without Western medicine today have life expectancies roughly comparable to our own. Daniel Lieberman, a biological anthropologist at Harvard, notes that “foragers who survive the precarious first few years of infancy are most likely to live to be 68 to 78 years old.”  In some ways, they are healthier in old age than the average American, with lower incidences of inflammatory diseases like diabetes and atherosclerosis. It should be no surprise that an active life spent outside in the sun, eating wild game and foraged plants, produces good health. Recent research shows that not only are we not living longer, we are less healthy and less mobile during the last decades of our lives than our great-grandfathers were. This points to a decline in overall health. We have new drugs to treat Type I diabetes, but there is more Type I diabetes than in the past. We have new treatments for cancer, but there is more cancer. Something has gone very wrong. What’s more, between 2014 and 2017, median American life expectancy declined every year. In 2017 it was 78.6 years, then it decreased again between 2018 and 2020 to 76.87. The figure for 2020 includes COVID deaths, of course, but the trend was already heading downward for several years, mostly from deaths of despair: diseases associated with chronic alcoholism, drug overdoses, and suicide. The reasons for the increase in deaths of despair are complex, but a major contributing factor is economic: people without good prospects over an extended period of time are more prone to self-destructive behavior. This decline is in contrast to the experience of peer countries. In addition to life expectancy, other upward trends have stalled or reversed in the past few decades. Family formation has slowed. The total fertility rate has dropped to well below replacement level. Real wages have stagnated. Debt levels have soared. Social mobility has stalled and income inequality has grown. Material conditions for most people have improved little except in narrow parts of life such as entertainment. Spencer Platt/Getty Images Trends, Aggregate, and Individuals  The last several decades have been a story of losing ground for much of middle America, away from a handful of wealthy cities on the coasts. The optimistic story that’s been told is that both income and wealth have been rising. That’s true in the aggregate, but when those numbers are broken down the picture is one of a rising gap between a small group of winners and a larger group of losers. Real wages have remained essentially flat over the past 50 years, and the growth in national wealth has been heavily concentrated at the top. The chart below represents the share of national income that went to the top 10 percent of earners in the United States. In 1970 it was 33.3 percent; in 2019 the figure was 45.4 percent. Disparities in wealth have become more closely tied to educational attainment. Between 1989 and 2019, household wealth grew the most for those with the highest level of education. For households with a graduate degree, the increase was 31 percent; with a college degree, it was 17 percent; with a high school degree, about 4 percent. Meanwhile, household wealth declined by a precipitous 60 percent for high school dropouts, including those with a GED. In 1989, households with a college degree had 2.74 times the wealth of those with only a high school diploma; in 2012 it was 3.08 times as much. In 1989, households with a graduate degree had 4.85 times the wealth of the high school group; in 2019, it was 6.12 times as much. The gap between the graduate degree group and the college group increased by 12 percent. The high school group’s wealth grew about 4 percent from 1989 to 2019, the college group’s wealth grew about 17 percent, and the wealth of the graduate degree group increased 31 percent. The gaps between the groups are growing in real dollars. It’s true that people have some control over the level of education they attain, but college has become costlier, and it’s fundamentally unnecessary for many jobs, so the growing wealth disparity by education is a worrying trend. Wealth is relative: if your wealth grew by 4 percent while that of another group increased by 17 percent, then you are poorer. What’s more crucial, however, is purchasing power. If the costs of middle-class staples like healthcare, housing, and college tuition are climbing sharply while wages stagnate, then living standards will decline. More problematic than growing wealth disparity in itself is diminishing economic mobility. A big part of the American story from the beginning has been that children tend to end up better off than their parents were. By most measures, that hasn’t been true for decades. The chart below compares the birth cohorts of 1940 and 1980 in terms of earning more than parents did. The horizontal axis indicates the relative income level of the parents. Among the older generation, over 90 percent earned more than their parents, except for those whose parents were at the very high end of the income scale. Among the younger generation, the percentages were much lower, and also more variable. For those whose parents had a median income, only about 40 percent would do better. In this analysis, low growth and high inequality both suppress mobility. Over time, declining economic mobility becomes an intergenerational problem, as younger people fall behind the preceding generation in wealth accumulation. The graph below illustrates the proportion of the national wealth held by successive generations at the same stage of life, with the horizontal axis indicating the median age for the group. Baby Boomers (birth years 1946–1964) owned a much larger percentage of the national wealth than the two succeeding generations at every point. At a median age of 45, for example, the Boomers owned approximately 40 percent of the national wealth. At the same median age, Generation X (1965–1980) owned about 15 percent. The Boomer generation was 15–18 percent larger than Gen X and it had 2.67 times as much of the national wealth. The Millennial generation (1981–1996) is bigger than Gen X though a little smaller than the Boomers, and it has owned about half of what Gen X did at the same median age. Those are some measurable indicators of the nation’s vitality, and they tell us that something is going wrong. A key reason for stagnant wages, declining mobility, and growing disparities of wealth is that economic growth overall has been sluggish since around 1970. And the main reason for slower growth is that the long-term growth in productivity that created so much wealth for America and the world over the prior two centuries slowed down. Wealth and the New Frontier There are other ways to increase the overall national wealth. One is by acquiring new resources, which has been done in various ways: through territorial conquest, or the incorporation of unsettled frontier lands, or the discovery of valuable resources already in a nation’s territory, such as petroleum reserves in recent history. Getting an advantageous trade agreement can also be a way of increasing resources.  Through much of American history, the frontier was a great source of new wealth. The vast supply of mostly free land, along with the other resources it held, was not just an economic boon; it also shaped American culture and politics in ways that were distinct from the long-settled countries of Europe where the frontier had been closed for centuries and all the land was owned space.  But there can be a downside to becoming overly dependent on any one resource. Aside from gaining new resources, real economic growth comes from either population growth or productivity growth. Population growth can add to the national wealth, but it can also put strain on supplies of essential resources. What elevates living standards broadly is productivity growth, making more out of available resources. A farmer who tills his fields with a steel plough pulled by a horse can cultivate more land than a farmer doing it by hand. It allows him to produce more food that can be consumed by a bigger family, or the surplus can be sold or traded for other goods. A farmer driving a plough with an engine and reaping with a mechanical combine can produce even more.  But productivity growth is driven by innovation. In the example above, there is a progression from farming by hand with a simple tool, to the use of metal tools and animal power, to the use of complicated machinery, each of which greatly increases the amount of food produced per farmer. This illustrates the basic truth that technology is a means of reducing scarcity and generating surpluses of essential goods, so labor and resources can be put toward other purposes, and the whole population will be better off. Total factor productivity (TFP) refers to economic output relative to the size of all primary inputs, namely labor and capital. Over time, a nation’s economic output tends to grow faster than its labor force and capital stock. This might owe to better labor skills or capital management, but it is primarily the result of new technology. In economics, productivity growth is used as a proxy for the application of innovation. If productivity is rising, it is understood to mean that applied science is working to reduce scarcity. The countries that lead in technological innovation naturally reap the benefits first and most broadly, and therefore have the highest living standards. Developing countries eventually get the technology too, and then enjoy the benefits in what is called catch-up growth. For example, China first began its national electrification program in the 1950s, when electricity was nearly ubiquitous in the United States. The project took a few decades to complete, and China saw rapid growth as wide access to electric power increased productivity. The United States still leads the way in innovation—though now with more competition than at any time since World War II. But the development of productivity-enhancing new technologies has been slower over the past few decades than in any comparable span of time since the beginning of the Industrial Revolution in the early 18th century. The obvious advances in a few specific areas, particularly digital technology, are exceptions that prove the rule. The social technologies of recent years facilitate consumption rather than production.As a result, growth in total factor productivity has been slow for a long time. According to a report from Rabobank, “TFP growth deteriorated from an average annual growth of 1.1% over the period 1969–2010 to 0.4% in 2010 to 2018.”  In The Great Stagnation, Tyler Cowen suggested that the conventional productivity measures may be misleading. For example, he noted that productivity growth through 2000–2004 averaged 3.8 percent, a very high figure and an outlier relative to most of the last half-century. Surely some of that growth was real owing to the growth of the internet at the time, but it also coincided with robust growth in the financial sector, which ended very badly in 2008.  “What we measured as value creation actually may have been value destruction, namely too many homes and too much financial innovation of the wrong kind.” Then, productivity shot up by over 5 percent in 2009–2010, but Cohen found that it was mostly the result of firms firing the least productive people. That may have been good business, but it’s not the same as productivity rising because innovation is reducing scarcity and thus leading to better living standards. Over the long term, when productivity growth slows or stalls, overall economic growth is sluggish. Median real wage growth is slow. For most people, living standards don’t just stagnate but decline. Spencer Platt/Getty Images You Owe Me Money As productivity growth has slowed, the economy has become more financialized, which means that resources are increasingly channeled into means of extracting wealth from the productive economy instead of producing goods and services. Peter Thiel said that a simple way to understand financialization is that it represents the increasing influence of companies whose main business or source of value is producing little pieces of paper that essentially say, you owe me money. Wall Street and the companies that make up the financial sector have never been larger or more powerful. Since the early 1970s, financial firms’ share of all corporate earnings has roughly doubled to nearly 25 percent. As a share of real GDP, it grew from 13–15 percent in the early 1970s to nearly 22 percent in 2020.  The profits of financial firms have grown faster than their share of the economy over the past half-century. The examples are everywhere. Many companies that were built to produce real-world, nondigital goods and services have become stealth finance companies, too. General Electric, the manufacturing giant founded by Thomas Edison, transformed itself into a black box of finance businesses, dragging itself down as a result. The total market value of major airlines like American, United, and Delta is less than the value of their loyalty programs, in which people get miles by flying and by spending with airline-branded credit cards. In 2020, American Airlines’ loyalty program was valued at $18–$30 billion while the market capitalization of the entire company was $14 billion. This suggests that the actual airline business—flying people from one place to another—is valuable only insofar as it gets people to participate in a loyalty program. The main result of financialization is best explained by the “Cantillon effect,” which means that money creation, over a long period of time, redistributes wealth upward to the already rich. This effect was first described in the 18th century by Richard Cantillon after he observed the results of introducing a paper money system. He noted that the first people to receive the new money saw their incomes rise, while the last to receive it saw a decline in their purchasing power because of consumer price inflation. The first to receive newly created money are banks and other financial institutions. They are called “Cantillon insiders,” a term coined by Nick Szabo, and they get the most benefit. But all owners of assets—including stocks, real estate, even a home—are enriched to some extent by the Cantillon effect. Those who own a lot of assets benefit the most, and financial assets tend to increase in value faster than other types, but all gain value. This is a version of the Matthew Principle, taken from Jesus’ Parable of the Sower: to those who have, more will be given. The more assets you own, the faster your wealth will increase. Meanwhile, the people without assets fall behind as asset prices rise faster than incomes. Inflation hawks have long worried that America’s decades-long policy of running large government deficits combined with easy money from the Fed will lead to runaway inflation that beggars average Americans. This was seen clearly in 2022 after the massive increase in dollars created by the Fed in 2020 and 2021.  Even so, they’ve mostly been looking for inflation in the wrong place. It’s true that the prices of many raw materials, such as lumber and corn, have soared recently, followed by much more broad-based inflation in everything from food to rent, but inflation in the form of asset price bubbles has been with us for much longer. Those bubbles pop and prices drop, but the next bubble raises them even higher. Asset price inflation benefits asset owners, but not the people with few or no assets, like young people just starting out and finding themselves unable to afford to buy a home. The Cantillon effect has been one of the main vectors of increased wealth concentration over the last 40 years. One way that the large banks use their insider status is by getting short-term loans from the Federal Reserve and lending the money back to the government by buying longer-term treasuries at a slightly higher interest rate and locking in a profit.  Their position in the economy essentially guarantees them profits, and their size and political influence protect them from losses. We’ve seen the pattern of private profits and public losses clearly in the savings and loan crisis of the 1980s, and in the financial crisis of 2008. Banks and speculators made a lot of money in the years leading up to the crisis, and when the losses on their bad loans came due, they got bailouts. Moral Hazard The Cantillon economy creates moral hazard in that large companies, especially financial institutions, can privatize profits and socialize losses. Insiders, and shareholders more broadly, can reap massive gains when the bets they make with the company’s capital pay off. When the bets go bad, the company gets bailed out. Alan Krueger, the chief economist at theTreasury Department in the Obama Administration, explained years later why banks and not homeowners were rescued from the fallout of the mortgage crisis: “It would have been extremely unfair, and created problems down the road to bail out homeowners who were irresponsible and took on homes they couldn’t afford.” Krueger glossed over the fact that the banks had used predatory and deceptive practices to initiate risky loans, and when they lost hundreds of billions of dollars—or trillions by some estimates—they were bailed out while homeowners were kicked out. That callous indifference alienates and radicalizes the forgotten men and women who have been losing ground. Most people know about the big bailouts in 2008, but the system that joins private profit with socialized losses regularly creates incentives for sloppiness and corruption. The greed sometimes takes ridiculous forms. But once that culture takes over, it poisons everything it touches. Starting in 2002, for example, Wells Fargo began a scam in which it paid employees to open more than 3.5 million unauthorized checking accounts, savings accounts, and credit cards for retail customers. By exaggerating growth in the number of active retail accounts, the bank could give investors a false picture of the health of its retail business. It also charged those customers monthly service fees, which contributed to the bottom line and bolstered the numbers in quarterly earnings reports to Wall Street. Bigger profits led to higher stock prices, enriching senior executives whose compensation packages included large options grants.  John Stumpf, the company’s CEO from 2007 to 2016, was forced to resign and disgorge around $40 million in repayments to Wells Fargo and fines to the federal government. Bloomberg estimates that he retained more than $100 million. Wells Fargo paid a $3 billion fine, which amounted to less than two months’ profit, as the bank’s annual profits averaged around $19.7 billion from 2017 to 2019. And this was for a scam that lasted nearly 15 years. What is perhaps most absurd and despicable about this scheme is that Wells Fargo was conducting it during and even after the credit bubble, when the bank received billions of dollars in bailouts from the government. The alliance between the largest corporations and the state leads to corrupt and abusive practices. This is one of the second-order effects of the Cantillon economy. Another effect is that managers respond to short-term financial incentives in a way that undermines the long-term vitality of their own company. An excessive focus on quarterly earnings is sometimes referred to as short-termism. Senior managers, especially at the C-suite level of public companies, are largely compensated with stock options, so they have a strong incentive to see the stock rise. In principle, a rising stock price should reflect a healthy, growing, profitable company. But managers figured out how to game the system: with the Fed keeping long-term rates low, corporations can borrow money at a much lower rate than the expected return in the stock market. Many companies have taken on long-term debt to finance stock repurchases, which helps inflate the stock price. This practice is one reason that corporate debt has soared since 1980. The Cantillon effect distorts resource allocation, incentivizing rent-seeking in the financial industry and rewarding nonfinancial companies for becoming stealth financial firms. Profits are quicker and easier in finance than in other industries. As a result, many smart, ambitious people go to Wall Street instead of trying to invent useful products or seeking a new source of abundant power—endeavors that don’t have as much assurance of a payoff. How different might America be if the incentives were structured to reward the people who put their brain power and energy into those sorts of projects rather than into quantitative trading algorithms and financial derivatives of home mortgages. While the financial industry does well, the manufacturing sector lags. Because of COVID-19, Americans discovered that the United States has very limited capacity to make the personal protective equipment that was in such urgent demand in 2020. We do not manufacture any of the most widely prescribed antibiotics, or drugs for heart disease or diabetes, nor any of the chemical precursors required to make them. A close look at other vital industries reveals the same penury. The rare earth minerals necessary for batteries and electronic screens mostly come from China because we have intentionally shuttered domestic sources or failed to develop them. We’re dependent on Taiwan for the computer chips that go into everything from phones to cars to appliances, and broken supply chains in 2021 led to widespread shortages. The list of necessities we import because we have exported our manufacturing base goes on. Financialization of the economy amplifies the resource curse that has come with dollar supremacy. Richard Cantillon described a similar effect when he observed what happened to Spain and Portugal when they acquired large amounts of silver and gold from the New World. The new wealth raised prices, but it went largely into purchasing imported goods, which ruined the manufactures of the state and led to general impoverishment. In America today, a fiat currency that serves as the world’s reserve is the resource curse that erodes the manufacturing base while the financial sector flourishes. Since the dollar’s value was formally dissociated from gold in 1976, it now rests on American economic prosperity, political stability, and military supremacy. If these advantages diminish relative to competitors, so will the value of the dollar. Dollar supremacy has also encouraged a debt-based economy. Federal debt as a share of GDP has risen from around 38 percent in 1970 to nearly 140 percent in 2020. Corporate debt has had peaks and troughs over those decades, but each new peak is higher than the last. In the 1970s, total nonfinancial corporate debt in the United States ranged between 30 and 35 percent of GDP. It peaked at about 43 percent in 1990, then at 45 percent with the dot-com bubble in 2001, then at slightly higher with the housing bubble in 2008, and now it’s approximately 47 percent. As asset prices have climbed faster than wages, consumer debt has soared from 43.2 percent of GDP in 1970 to over 75 percent in 2020.  Student loan debt has soared even faster in recent years: in 2003, it totaled $240 billion—basically a rounding error—but by 2020, the sum had ballooned to six times as large, at $1.68 trillion, which amounts to around 8 percent of GDP. Increases in aggregate debt throughout society are a predictable result of the Cantillon effect in a financialized economy. The Rise of the Two-Income Family The Cantillon effect generates big gains for those closest to the money spigot, and especially those at the top of the financial industry, while the people furthest away fall behind. Average families find it more difficult to buy a home and maintain a middle-class life. In 90 percent of U.S. counties today, the median-priced single-family home is unaffordable on the median wage. One of the ways that families try to make ends meet is with the promiscuous use of credit. It’s one of the reasons that personal and household debt levels have risen across the board. People borrow money to cover the gap between expectations and reality, hoping that economic growth will soon pull them out of debt. But for many, it’s a trap they can never escape. Another way that families have tried to keep up is by adding a second income. In 2018, over 60 percent of families were two-income households, up from about 30 percent in 1970. This change is not a result of a simple desire to do wage work outside the home or of “increased opportunities,” as we are often told. The reason is that it now takes two incomes to support the needs of a middle-class family, whereas 50 years ago, it required only one. As more people entered the labor market, the value of labor declined, setting up a vicious cycle in which a second income came to be more necessary. China’s entry into the World Trade Organization in 2001 put more downward pressure on the value of labor. When people laud the fact that we have so many more two-income families—generally meaning more women working outside the home—as evidence that there are so many great opportunities, what they’re really doing is retconning something usually done out of economic necessity. Needing twice as much labor to get the same result is the opposite of what happens when productivity growth is robust. It also means that the raising of children is increasingly outsourced. That’s not an improvement. Another response to stagnant wages is to delay family formation and have fewer children. In 1960, the median age of a first marriage was about 20.5 years. In 2010, it was approximately 27, and in 2020 it was an all-time high of over 29.18  At the same time, the total fertility rate of American women was dropping: from 3.65 in 1960 down to 2.1, a little below replacement level, in the early 1970s. Currently, it hovers around 1.8. Some people may look on this approvingly, worried as they are about overpopulation and the impact of humans on the environment. But when people choose to have few or no children, it is usually not a political choice. That doesn’t mean it is simply a “revealed preference,” a lower desire for a family and children, rather than a reflection of personal challenges or how people view their prospects for the future. Surely it’s no coincidence that the shrinking of families has happened at the same time that real wages have stagnated or grown very slowly, while the costs of housing, health care, and higher education have soared. The fact that American living standards have broadly stagnated, and for some segments of the population have declined, should be cause for real concern to the ruling class. Americans expect economic mobility and a chance for prosperity. Without it, many will believe that the government has failed to deliver on its promises. The Chinese Communist Party is regarded as legitimate by the Chinese people because it has presided over a large, broad, multigenerational rise in living standards. If stagnation or decline in the United States is not addressed effectively, it will threaten the legitimacy of the governing institutions.  But instead of meeting the challenge head-on, America’s political and business leaders have pursued policies and strategies that exacerbate the problem. Woke policies in academia, government, and big business have created a stultifying environment that is openly hostile to heterodox views. Witness the response to views on COVID that contradicted official opinion. And all this happens against a backdrop of destructive fiscal and monetary policies. Low growth and low mobility tend to increase political instability when the legitimacy of the political order is predicated upon opportunity and egalitarianism. One source of national unity has been the understanding that every individual has an equal right to pursue happiness, that a dignified life is well within reach of the average person, and that the possibility of rising higher is open to all. When too many people feel they cannot rise, and when even the basics of a middle-class life are difficult to secure, disappointment can breed a sense of injustice that leads to social and political conflict. At first, that conflict acts as a drag on what American society can accomplish. Left unchecked, it will consume energy and resources that could otherwise be put into more productive activities. Thwarted personal aspirations are often channeled into politics and zero-sum factional conflict. The rise of identity politics represents a redirection of the frustrations born of broken dreams. But identity politics further divides us into hostile camps. We’ve already seen increased social unrest lately, and more is likely to follow. High levels of social and political conflict are dangerous for a country that hopes to maintain a popular form of government. Not so long ago, we could find unity in civic rituals and were encouraged to be proud of our country. Now our history is denigrated in schools and by other sensemaking institutions, leading to cultural dysphoria, social atomization, and alienation. In exchange, you can choose your pronouns, which doesn’t seem like such a great trade. Just as important as regaining broad-based material prosperity and rising standards of living—perhaps more important—is unifying the nation around a common understanding of who we Americans are and why we’re here. Tyler Durden Sat, 01/07/2023 - 23:30.....»»

Category: blogSource: zerohedgeJan 8th, 2023

Macleod: Gold In 2023

Macleod: Gold In 2023 Authored by Alasdair Macleod via, This article is in two parts. In Part 1 it looks at how prospects for gold should be viewed from a monetary and economic perspective, pointing out that it is gold whose purchasing power is stable, and that of fiat currencies which is not. Consequently, analysts who see gold as an investment producing a return in national currencies have made a fundamental error which will not be repeated in this article. Part 2 covers geopolitical issues, including the failure of US policies to contain Russia and China, and the consequences for the dollar. By analysing recent developments, including how Russia has secured its own currency, the Gulf Cooperation Council’s political migration from a fossil fuel denying western alliance to a rapidly industrialising Asia, and China’s plans to replace the petrodollar with a petro-yuan crystalising, we can see that the dollar’s hegemonic role will rapidly become redundant. With about $30 trillion tied up in dollars and dollar-denominated financial assets, foreigners are bound to become substantial sellers - even panicking at times. The implications are very far reaching. This article limits its scope to big picture developments in prospect for 2023 but can be regarded as a basis for further debate. Part 1 — The monetary perspective Whether to forecast values for gold or fiat currencies This is the time of year when precious metal analysts review the year past and make predictions for the year ahead. Their common approach is of investment analysis — overwhelmingly their readership is of investors seeking to make profits in their base currencies. But this approach misleads everyone, analysts included, into thinking that precious metals, particularly gold, is an investment when it is in fact money. Most of these analysts have been educated to think gold is not money by schools and universities which have curriculums which promote macroeconomics, particularly Keynesianism. If their studies had not been corrupted in this way and they had been taught the legal distinction between money and credit instead, perhaps their approach to analysing gold would have been different. But as it is, these analysts now think that cash notes issued by a central bank is money when very clearly it has counterparty risk, minimal though that usually is, and it is accounted for on a central bank balance sheet as a liability. Under any definition, these are the characteristics of credit and matching debt obligations. Nor do the macroeconomists have an explanation for why it is that central banks continue to hoard massive quantities of gold bullion in their reserves. Furthermore, some governments even accumulate gold bullion in other accounts in addition to their central banks’ official reserves. The wisdom of central banks and Asian governments to this approach was illustrated this year when the western alliance led by America emasculated the Russian central bank of its currency reserves with little more than the stroke of a pen. This is the other side of proof that the legal distinction between money and credit remains, despite any statist attempts to redefine their currency as money. That it can be reneged upon further confirms its credit status. We must therefore amend our approach to analysing gold and its bed-fellow, silver. Other precious metals have never been money, so are not part of this analysis. Silver was dropped as an official monetary standard long ago, so we can focus on gold. With respect to valuing gold, the empirical evidence is clear. Over decades, centuries, and even millennia its purchasing power measured by commodities and goods on average has varied remarkably little. But we don’t need to go back centuries: an illustration of energy prices since the dollar was on a gold standard, in this case of crude oil, makes the point for us. The first point to note is that between 1950—1971, the price of oil in dollars was remarkably stable with almost no variation. Pricing agreements stuck. It was also the time of the Bretton Woods agreement, which was suspended in 1971. Bretton Woods tied the dollar credibly to gold, until the expansion of dollar credit became too great for the agreement to bear. The link was then broken, and the price of oil in dollars began to rise. Priced in US dollars, not only has the price of crude been incredibly volatile but before the Lehman crisis by June 2008 it had increased fifty-four times. Measured in gold it had merely doubled. Therefore, macroeconomists have a case to answer about the suitability of their dollar currency replacement for gold in its role as a stable medium of exchange.  The next chart shows four commodity groups, consolidating a significant number of individual non-seasonal commodities, priced in gold. Over the last thirty years, the average price of these commodities has fallen a net 20%, with considerably less volatility than priced in any fiat currency. Whichever way we look at the relationships between commodities and mediums of exchange, the evidence is always the same: price volatility is overwhelmingly in the fiat currencies. The only possible conclusions we can draw from the evidence is that detached from gold, fiat currencies as money substitutes are not fit for purpose. Our next chart shows how the four major fiat currencies have performed priced in gold since the permanent suspension of the Bretton Woods agreement in 1971. Since 1970, the US dollar, which establishment economists accept as the de facto replacement for gold, has lost 98% of its purchasing power priced in gold which we have established as still fulfilling the functions of sound money by pricing commodities with minimal variation. The other three major currencies’ performance has been similarly abysmal. Analysts analysing the prospects for gold invariably assume, against the evidence, that price variations emanate from gold, and not the currencies detached from legal money. There is little point in following this convention when we know that priced in legal money commodities and therefore the wholesale values of manufactured goods can be expected to change little. The correct approach can only be to examine the outlook for fiat currencies themselves, and that is what I shall do, starting with the US dollar. 2023 is likely to make or break the US dollar Outlook for dollar credit We know that the commercial banking system is highly leveraged, measured by the ratio of balance sheet assets to shareholders’ equity, typical of conditions at the top of the bank credit cycle. While interest rates were firmly anchored to the zero bound, lending margins became compressed, and increasing balance sheet leverage was the means by which a bank could maintain profits at the bottom line. Now that interest rates are rising, the bankers’ collective attitude to bank credit levels has altered fundamentally. They are increasingly aware of risk exposure, both in financial and non-financial sector lending. Already, losses in financial markets are accumulating both for their customers and for banks themselves, where they have bond exposure on their balance sheets. Consequently, they have begun to modify their business models to reduce their exposure to falling asset values in bond, equity, and derivative markets. Furthermore, while US banks appear less leveraged than, say, the Eurozone and Japanese banking systems, paring down bank equity to remove intangibles and other elements to arrive at a Tier 1 capital definition severely restricts an American bank’s ability to maintain its balance sheet size. There are two ways a bank can comply with Basel 3 Tier 1 regulations: either by increasing shareholders’ capital or de-risking their balance sheets. With most large US banks capitalised in the markets at near their book value, issuing more stock is too dilutive, so there is increased pressure to reduce lending risk. This is set by the net stable funding ratio (NSFR) introduced in Basel 3, which is the ratio of available stable funding (ASF) to required stable funding (RSF). The application of ASF rules is designed to ensure the stability of a bank’s sources of credit (i.e., the deposit side of the balance sheet). It applies a 50% haircut to large, corporate depositors, whereas retail deposits being deemed a more stable source of funding, only suffer a 5% haircut. This explains why Goldman Sachs and JPMorgan Chase have set up retail banking arms and have turned away large deposits which have ended up at the Fed through its reverse repo facility. The RSF applies to a bank’s assets, setting the level of ASF apportionment required. To de-risk its balance sheet, a commercial bank must avoid exposure to loan commitments of more than six months, deposits with other financial institutions, loans to non-financial corporates, and loans to retail and small business customers. Physically traded commodities, including gold, are also penalised, as are derivative exposures which are not specifically offset by another derivative. The consequences of Basel 3 NSFR rules are likely to see commercial banking move progressively into a riskless stasis, rather than attempt the reduction in balance sheet size which would require deposit contraction. While individual banks can reduce their deposit liabilities by encouraging them to shift to other banks, system-wide balance sheet contraction requires a net reduction of deposit balances and similar liabilities across the entire banking network. Other than the very limited ability to write off deposit balances against associated non-performing loans, the creation process of deposits which are always the counterpart of bank loans in origin is impossible to reverse unless banks actually fail. For this reason, system-wide non-performing loans can only be written off against bank equity, stripped of goodwill and other items regarded as the property of shareholders, such as unpaid tax credits. For this reason, US money supply (a misnomer if ever there was one, being only credit — but we must not be distracted) has stopped increasing.  Short of individual banks failing, a reduction in system-wide deposits is therefore difficult to imagine, but banks have been turning away large deposit balances. These have been taken up instead by the Fed extending reverse repurchase agreements to non-banking institutions. In a reverse repo, the Fed takes in deposits removing them from public circulation. More to the point, they remove them from the commercial banking system, which is penalised by holding large deposits.  The level of reverse repos at the Fed started to increase along with the coincidence of the introduction of Basel 3 regulations and a new rising interest rate trend. In other words, commercial banks began to reject large deposit balances under Basel 3 NSFR rules as a new set of risks began to materialise. Today, reverse repos stand at over $2.2 trillion, amounting to about 10% of M2 money supply. Further rises in interest rates seem bound to undermine financial asset values further, encouraging banks to sell or reclassify any that they have on their balance sheets. According to the Federal Deposit Insurance Commission, in the last year securities available for sale totalling $3.186 trillion have fallen by $750bn while securities held to maturity at amortised cost have risen by $720bn. This sort of window dressing allows banks to avoid recording losses on their bond positions.  This treatment cannot apply to collateral liquidation against financial and non-financial loans. In the non-financial sector, many borrowers will have taken declining and very low interest rates for granted, encouraging them to enter into unproductive borrowing. The continuing survival of uneconomic businesses, which should go to the wall, has been facilitated. By putting a cap on banking activities the Basel 3 regulatory regime appears to starve both the financial and non-financial economy of bank credit. In any event, the relationships between shareholeders’ equity and total assets has become very streached. Even without bank failures the maintenance of credit supply will now fall increasingly on the shoulders of the Fed, either by abandoning quantitative tightening and reverting to quantitative easing, or by the inflationary funding of growing government deficits. But the Fed already has substantial undeclared losses on its assets acquired through QE, estimated by the Fed itself to have amounted to $1.1 trillion at end-September. Not only is the US Government sinking into a debt trap requiring ever-increasing borrowing while interest rates rise, but the Fed is also in a debt trap of its own making. We have now established the reasons why broad money supply is no longer growing. Furthermore, commercial banks are thinly capitalised, and therefore some of them are at risk of insolvency under Tier 1 regulations, which strip out goodwill and other intangibles from shareholders’ capital. Working off the FDIC’s banking statistics for the entire US banking system at end-2022Q3, these factors reduce the US banking system’s true Tier 1 capital from $2,163bn to only $1,369bn, on a total balance sheet of $23,631bn. Shifting on-balance sheet debt from mark-to-market to holding to redemption conceals losses on a further $720bn.  Furthermore, with counterparty risks from highly leveraged banking systems in the Eurozone and Japan where asset to equity ratios average more than twenty times, systemic risk for the large American banks is an additional threat to their survival. The ability of the Fed to ensure that no major bank fails is hampered by its own financial credibility. And given that the only possible escape route from a crisis of bank lending and the US Government’s and the Fed’s debt traps is accelerating monetary inflation, foreign holders of dollars and dollar-denomicated assets are under pressure to turn sellers of dollars. The euro system faces its own problems The euro system’s exposure to bond losses (collectively the ECB and national central banks) are worse proportionately than those of America’s Fed, with the euro system’s balance sheet totalling 58% of the Eurozone’s GDP (versus the Fed’s at 37%). The yield on the German 10-year bond is now higher than at its former peak in October, leading the way to further Eurozone bond losses at a time when Eurozone governments are increasing their funding requirements. While Germany and the Netherlands are rated AAA and should not have much difficulty funding their deficits, the problem with the Club Med nations will become acute.  With the ECB belatedly turning hawkish on interest rates, a funding crisis seems certain to hit Italy in particular, repeating the Greek crisis of 2010 but on a far larger scale. Furthermore, in the face of falling prices Japanese investment which had supported French bond prices in particular is now being liquidated. The Eurozone’s global systemically important banks (G-SIBs) are highly leveraged, with average asset to equity ratios of 20.1. Rising interest rates are more of a threat to their existence than to the equivalent US banks, with a bloated repo market ensuring systemic risk is fatally entwined between the banks and the euro system itself. The Club Med national central banks have accepted dubious quality collateral against repos, which will have a heightened default risk as interest rates rise further. It should be borne in mind that the ECB under Mario Draghi and Christine Lagarde exploited low and negative rates to fund member states’ national debt without the apparent consequences of rising price inflation. This has now changed, with international holders of euros on inflation-watch. It is probably why Lagarde has turned hawkish, attempting to reassure international currency and debt markets. But does a leopard really change its spots?  A combined banking and funding crisis brought forward by a rising interest rate trend is emerging as a greater short-term threat to the euro system and the euro itself than runaway inflation. The importance of the latter is downplayed by official denial of a link between inflation of credit and rising prices. Instead, in common with other central banks, the ECB recognises that rising prices are a problem, but not of its own making. Russia is seen to be the culprit, forcing up energy prices. In response, along with other members of the western alliance the EU has capped Russian oil at $60. This is meaningless, but for the ECB it allows the narrative of transient inflation to be sustained. The euro system hopes that the dichotomy between Eurozone CPI inflation of 10.1% while the ECB’s deposit rate currently held at 2% can with relatively minor interest rate increases be ignored. This amounts to a policy based on hope rather than reality. It also assumes central banks will maintain control over financial markets, a policy united with the other central banks governing the finances of the entire western alliance. But foreign exchange markets are slipping out of their control, because in terms of humanity, the western alliance covers about 1.2 billion souls, with the rest of the world’s estimated 8 billion increasingly disenchanted with the alliance’s hegemony. Part 2 — Geopolitical factors The foreign exchange influence on currency values A currency’s debasement and the adjustment to its purchasing power is realised in two arenas. First and foremost, economists tend to concentrate on the effects on prices in a domestic economy. But almost always, the first realisation of the consequences of debasement is by foreign investors and holders of the currency.  According to the US Treasury TIC system, in September foreigners had dollar bank deposits and short-term securities holdings amounting to $7.422 trillion and a further $23.15 trillion of US long-term securities for a combined total of $30.6 trillion. To this enormous figure can be added Eurodollar balances and bonds outside the US monetary system, and additionally foreign interests in non-financial assets. These dollar obligations to foreign holders are the consequence of two forces. The first is that the dollar is the world’s reserve currency and dollar liquidity is required for global trade. The second is that declining interest rates over the last forty years have encouraged the retention of dollar assets due to rising asset values. Now that there is a new rising trend of interest rates, the portfolio effect is going into reverse. Since October 2021, foreign official holdings of long-term securities (including US Treasuries) have declined by $767bn, and private sector holdings by $3,080bn. Much of this is due to declining portfolio valuations, which is why the dollar’s trade weighted index has not fully reflected this decline. Nevertheless, the trend is clear. By weaponizing the dollar, the US Government chose the worst possible timing in the context of a financial war against Russia. By removing all value form Russia’s foreign currency reserves, a signal was sent to all other nations that their foreign reserves might be equally rendered valueless unless they toe the American line. Together with sanctions, the intention was to cripple Russia’s economy. These moves failed completely, a predictable outcome as any informed historian of trade conflicts would have been aware. Instead, currency sanctions have handed power to Russia, because together with China and through the memberships of the Shanghai Cooperation Organisation, the Eurasian Economic Union, and BRICS, effectively comprising nations aligning themselves against American hegemony, Russia has enormous influence. This was demonstrated last June when Putin spoke at the 2022 St Petersburg International Economic Forum. It was attended by 14,000 people from 130 countries, including heads of state and government. Eighty-one countries sent official delegations. The introductory text of Putin’s speech is excerpted below, and it is worth reflecting on his words.  It amounts to an encouragement for all attending governments to dump dollars and euros, repatriate gold held in financial centres controlled or influenced by partners in the American-led western alliance, and favour reserve policies angled towards commodities and commodity related currencies. More than that, it amounts to a declaration of financial conflict. It tells us that Russia’s response to currency and commodity sanctions is no longer reactive but has turned aggressive, with an objective to deliberately undermine the alliance’s currencies. Being cut off from them, Russia cannot take direct action. The attack on the dollar and the other alliance currencies is being prosecuted by the supra-national organisations through which Russia and China wield their influence. And Russia has protected the rouble from a currency war by linking it to an oil price which it controls. And as we have seen in the discussion of the relationship between oil prices and gold in Part 1 above, the rouble is effectively tied more to gold than to the global fiat currency system. Other than looking at the dollar overhang from US Treasury’s TIC statistics, we can judge the forces aligning behind the western alliance and the Russia-China axis in terms of population. Together, the western alliance including the five-eyes security partners, Europe, Japan, and South Korea total 1.2 billion people who by turning their backs on fossil fuels are condemning themselves to de-industrialising. Conversely, the Russia-China axis through the SCO, EAEU, and BRICS directly incorporates about 3.8 billions whose economies are rapidly industrialising. Furthermore, the other 3 billions, mainly on the East Asian fringes, Africa and South America while being broadly neutral are economically dependent to varying degrees on the Russia-China axis. In terms of trade and finance, the geopolitical tectonic plates have shifted more than is officially realised in the western alliance. Led by America, it is fighting to retain its hegemony on assumptions that might have been valid twenty years ago. But in recent months, we have even seen Saudi Arabia turn its back on America and the petrodollar, along with the entire Middle East. Admittedly, part of the reason for the ending of the petrodollar, which has sustained the dollar’s hegemony since 1973, must be the western alliance’s policies on fossil fuels, set to cut Saudi Arabia off from Western markets entirely in the next few decades. Contrast that with China, happy to sign a gas supply agreement with Qatar for the next 27 years, and the welcome Mohammed bin Salman, Saudi Arabia’s de facto leader gave to President Xi earlier this month. In return for guaranteed oil supplies, China will recycle substantial sums into Saudi Arabia and the Gulf region, linking it into the Silk Roads, and a booming pan-Asian economy. The Saudis are turning their backs not only on oil trade with the western alliance but on their currencies as well. There is no clearer example of Putin’s influence, as declared at the St Petersburg Forum in June. Instead, they will accumulate trade balances with China in yuan and bring business to the International Shanghai Gold Exchange, even accumulating bullion for at least some of its net trade surplus. The alignment of the Saudis and the Gulf Cooperation Council behind the Russia-China axis gives Putin greater control over global energy prices. With reasonably consistent global demand and cooperation from his partners, he can more or less set the oil price as he desires. Any response from the western alliance could even lead to a blockade of the Straits of Hormuz, and/or the entrance to the Red Sea, courtesy of Iran and the Yemeni Houthis.  He who controls the oil price controls the purchasing power of the dollar. The weapons at Putin’s disposal are as follows: At a moment of his choosing, Putin can ramp up energy prices. He would benefit from waiting until European gas reserves begin to run down in the next few months and when global oil demand will be at its peak. By ramping up energy prices, he will undermine the purchasing power of the dollar and the other western alliance currencies. At a time of economic stagnation or outright recession, he can force the alliance’s central banks to raise their interest rates to undermine the capital values of financial assets even further, and to undermine their governments’ finances through escalating borrowing costs. Putin is increasing pressure on Ukraine. He is doing this by attacking energy infrastructure to force a refugee problem onto the EU. At the same time, he is rebuilding his military resources, possibly for a renewed attack to capture the Ukraine’s Eastern provinces, or if not to maintain leverage in any negotiations. He can bring forward the plans for a proposed trade settlement currency, currently being considered by a committee of the Eurasian Economic Union. The development of this currency, provisionally to be backed by a basket of commodities and participating national currencies can easily be simplified into a commodity alternative, perhaps represented by gold bullion as proxy for a commodity basket. By giving advance warning of his strategy to undermine the dollar, he can accelerate selling pressure on the dollar through the foreign exchanges. Already, members of the Russia-China axis know that if they delay in liquidating dollar and euro positions they will suffer substantial losses on their reserves. While he is in a position to control energy prices, it is in Putin’s interest to act. By a combination of escalating the Ukraine situation before battlefields thaw and the need to ensure that inflationary pressures on the western alliance are maintained, we can expect Putin to escalate his attack on the western alliance’s currencies in the next two months. China’s renminbi (yuan) policy While Putin took a leaf out of the American book by insisting on payment for oil in roubles in order to protect its purchasing power, less obviously China has agreed a similar policy with Saudi Arabia. Instead of dollars, it will be renminbi, or “petro-yuan”. Payments for oil and gas supplies to the Saudis and other members of the Gulf Cooperation Council will be through China’s state-owned banks which will create the credit necessary for China and other affiliated nations importing energy to pay the Saudis. Through double-entry bookkeeping, the credit will accumulate at the banks in the form of deposits in favour of the exporters, which will in turn be reflected in the energy exporters’ currency reserves, replacing dollars which will no longer be needed. Through its banks, China can create further credit to invest in infrastructure projects in the Middle East, Greater Asia, Africa, and South America. This is precisely what the US did after the agreement with the Saudis back in 1973, leading to the creation of the petrodollar. The difference is that the US used this mechanism to buy off regimes, principally in Latin and South America, so that they would not align with the USSR.  We can expect China to follow a commercial, and not a political strategy. Bear in mind that both China and Russian foreign policies are not to interfere in the domestic politics of other nations but to pursue their own national interests. Therefore, the expansion of Chinese bank credit will accelerate the industrialisation of Greater Asia for the overall benefit of China’s economy. So long as the purchasing power of the yuan is stabilised, this petro-yuan policy will not only succeed, but generate reserve and commercial demand for yuan. It was the policy that led to the dollar’s own stabilisation. With the yuan prospectively replacing the US dollar, we can see that the dollar’s hegemony will also be replaced with that of the yuan. The Saudis will be fully aware of their role in providing stability for the dollar. Triffin’s dilemma describes how a reserve currency needs to be issued in large quantities for it to succeed in that role. The creation of the petrodollar assisted materially. In America’s case, the counterpart of that was deliberate budget and trade deficits. But China has a savings culture, which tends to lead to a trade surplus. Therefore, it must satisfy Triffin by credit expansion. Looking through an initial phase of currency disruption, which we are bound to experience as markets gravitate towards petro-yuan, in the longer-term China might find itself in the position of having to put a lid on the yuan’s purchasing power to stop it rising to a point which becomes economically disruptive. Bizarrely, this might end up being the role for China’s undoubted massive hidden gold reserves. By introducing a gold standard for its currency, China could put a cap on the yuan’s purchasing power. Given the initial disruption to global foreign exchanges as the dollar loses its status, there would be sense in China declaring a gold standard sooner rather than later. Remember, gold retains a stable purchasing power over the long term with only modest fluctuations, the characteristics the Chinese planners are bound to want to see in their currency as the transacting and financing medium for its pan-Asian plans. In this scenario the US Government and the Fed will be faced with collapsing currency, which can only be stabilised by going back onto a gold standard. But this igoes so against ingrained US policy, a move back to securing the dollar’s purchasing power is hardly even a last resort. Finally, some comments on gold From the foregoing analysis, it should be clear that in estimating the outlook for gold it is not a question of forecasting what the gold price will be in 2023, but what will happen to the dollar, and therefore the other major fiat currencies. These currencies have shown themselves not fit to be mediums of exchange, only being stealthy fund raising media for governments. While western market analysts appear to have failed to grasp this point, President Putin certainly has, as his speech in Leningrad last June demonstrated. If he follows through on his comments with action, he has the potential to inflict serious damage on the dollar and the other western alliance currencies. Furthermore, China has also made a major step forward with its agreement with Saudi Arabia to replace the petrodollar with a petro-yuan. Throughout history, gold, which is legal money, has maintained its value in general terms with only modest variation. It is fiat currencies which have lost purchasing power to the point where from 1970 the dollar has lost 98% of it. The comparison between gold and the dollar is simply one between legal money and fiat credit — the only way in which relative values can be determined between them. Our last chart will not be a technical presentation of gold, but of the dollar, for which we will use a log scale so that we can think in terms of percentages. Watch for the break below the support line at about 2%.  The modest fall projected by the pecked line is a halving of the dollar’s purchasing power, measured in real money, which suggests a gold price for the dollar at 1/3,600 gold ounces. This is not a forecast but gently chides those who think it is the gold price which changes. Where the rate actually settles in 2023 will depend on President Putin, who more than any technical analyst, more than any western investment strategist, and even more than the Fed itself has the power to set the dollar’s future price measured in gold. One thing we will admit, and that is when fiat currencies begin to slide to the point where domestic Americans realise that it is the dollar falling and not gold rising, a premium will develop for gold’s value against consumer items and assets, such as residential property, reflecting the awful damage a currency collapse does to the collective wealth of the people. Tyler Durden Sat, 12/31/2022 - 08:10.....»»

Category: dealsSource: nytDec 31st, 2022

Why Are So Many Men Leaving The Workforce?

Why Are So Many Men Leaving The Workforce? Authored by Ryan McMaken via The Mises Institute, Last week, CNN featured a story called "Men are dropping out of the workforce. Here's why" The article went on to tell us virtually nothing at all about why so many men are leaving the workforce. Although as many as seven million men have stayed out of the workforce for varying reasons, the CNN piece was really about how more women are joining the workforce, and how wonderful it is that more women are working in "male dominated" fields. The fact that more women are joining the workforce, however, tells us nothing about why men are leaving. Indeed, the CNN piece offered only one reason to answer why men are leaving the workforce: they're becoming stay-at-home dads. That category, however, is fairly small and numbers only in the hundreds of thousands. That leaves us wondering why millions of men have left the workforce for reasons other than raising children. If we look deeper into the available information on the question, the reality appears to be a lot less rosy than CNN's suggested reason of "their wives are so doggone successful, these men decided to stay home and raise the kids."  Source: Census Bureau, Table SHP-1: Parents and Children in Stay-at-Home Parent Family Groups. Instead, the reasons driving the lion's share of missing men to leave the workforce appear to be illness, drug addiction, a perceived lack of well-paying jobs, government welfare, and the decline of marriage. None of these are reasons to celebrate, and few of these reasons lend themselves to any quick fixes through changes in law or policy.  At Least Six Million Missing Men  As I noted earlier this month, there are at least six million men of "prime age" (age 25-54) who are out of the workforce for various reasons. Historically, this number has been getting larger at a rate faster than growth of total men in that age group. That is, fewer than 3 percent of prime-age men were "not in the workforce" in the late 1970s, but 5.6 percent of men in this group were out of the labor force in 2022. That translates into approximately 7.1 million men according to the Census Bureau's count of men "not in labor force."  Source: Bureau of Labor Statistics. We could contrast this with the proportion of women who are not in the labor force. Fewer prime-age women today are out of the labor force than was the case in the late 1970s. Women tend to remain out of the labor force in much larger numbers of men, so we find that in 2022, the total number of women out of the labor force is approximately 15 million. That number is smaller than what was common in the late 1970's, however. As more women have joined the labor force over the past 40 years, more men have left.  Source: Bureau of Labor Statistics. Again, it is important to emphasize we are talking about prime age men here, and we're excluding older and younger populations in which retirement and schooling remove large numbers of workers from the workforce. Even including only prime age men, however, Alan B. Kreuger notes that the workforce trend in the US is headed downward faster than other wealthy countries: Although the labor force participation rate of prime age men has trended down in the United States and other economically advanced countries for many decades, by international standards the labor force participation rate of prime age men in the United States is notably low. Why Men Leave the Labor Force Determining reasons for leaving the labor force is not easy, as the data depends heavily on surveys and on extrapolation.  According to the census bureau, however, number less than 250,000 men in recent years are outside the labor force in order to care for children full time. This is only a tiny fraction of the total number of parents who leave the labor force to be stay-at-home parents. That leaves more than six million men who have left the labor force for some other reason.  Wages and Social Status One thing is fairly clear: labor force participation is worse for men with less schooling. As Kreuger notes, labor force participation for prime age men has fallen for men at all education levels, "but by substantially more for those with a high school degree or less." Indeed, labor force participation has barely fallen for men with advanced degrees, but has gone into steep decline among high school dropouts and those with no college.  Source: Ariel J. Binder and John Bound, "The Declining Labor Market Prospects of Less-Educated Men," Journal of Economic Perspectives 33, no. 2 (Spring 2019): 170. Closely connected to this is the relative wage growth among these groups. While inflation-adjusted wages have increased significantly for men with college-level schooling or more, the same is certainly not true for men with "some college" or less. In these latter groups, earnings have stagnated since 1965, having risen throughout the mid 1970s, falling below the 1965 wage by 1995, and then slowly returning to 1960s levels. While this does not represent a sizable fall in wages in real terms since 1965, it is a large drop relative to the wages of men with more schooling.  Source: Ariel J. Binder and John Bound, "The Declining Labor Market Prospects of Less-Educated Men," Journal of Economic Perspectives 33, no. 2 (Spring 2019): 165. (Women, incidentally, have not seen nearly as large declines in wages based on levels of schooling.) This growing earnings gap between men at various education levels has been blamed for driving the exit of so many men from the workforce. For example, in a report from the Boston Federal Reserve earlier this month, research Pinghui Wu concludes that relative decline in wages drives more men to leave the workforce than has the overall decline in real wages. Moreover, Wu ties the decline in relative wages to declines in "a worker’s social status." This effect is seen most strongly in non-Hispanic white men and younger men. Wu writes: "non-college-educated men are more likely to leave the labor force when the top earners in a state make disproportionately more than the other workers." Falling social status has been tied to low job-satisfaction, disability, and higher mortality. All of this tends to lead to lower workforce participation. Moreover, men at lower education and lower wage levels tend to be more prone to workplace injury, given the nature of the work. Indeed, as Ariel Binder and John Bound have shown, men who have exited the labor force say they are frequently in pain, and take pain medication regularly. Men in this group who are over 45 years of age also tend to be more frequently eligible for government disability benefits. Binder and Bound suggest that the expansion of disability benefits in recent decades "could explain up to 25 percent of the rise in nonparticipation among 45–54 year-old high school graduates (without college)." The Decline of Marriage Wu, Binder, and Bound all also point to another important factor in falling male workforce participation: changes in marriage patterns.  Wu notes that men with lower social status fare more poorly in the marriage market, and that "marriage market sorting [a] potential channels through which relative earnings affect men’s labor force exit decisions." This would also help explain why declining social status also appears to especially affect younger men who are more likely to be active in pursuing a spouse.  Binder and Bound meanwhile note declining marriage rates are closely tied to workforce participation overall. This works in both directions: Declining incomes lead to declines in marriage. But unmarried men also have less incentive to actively seek employment. Marriage also may hamper a man's ability to draw income from existing relatives. Binder and Bound write: As others have documented, family structure in the United States has changed dramatically since the 1960s, featuring a tremendous decline in the share of less educated men forming and maintaining stable marriages. We additionally show an increase in the share of less-educated men living with their parents or other relatives. Providing for a new family plausibly provides a man with incentives to engage in labor market activity: conversely, a reduction in the prospects of forming and maintaining a stable family removes an important labor supply incentive. At the same time, the possibility of drawing income support from existing relatives creates a feasible labor-force exit. It's not just men with lower levels of schooling who marry less often, however. Marriage has indeed declined more for lower-income men than higher-income men. Declining marriage rates at the middle-class level and below, however, likely drive falling labor participation independent of wages. That is, "changing family structure shifts male labor supply incentives independently of labor market conditions" as unmarried men are simply less motivated to work." What Is to Blame? The importance of relative wages points to the importance of economic factors in the decline of working men.   Enormous growth in government intervention in the twentieth century has led to a reversal of nineteenth century trends and led instead to capital consumption. It is notable that since the 1970s, savings and investment have declined, and Mihai Macovai notes " the real stock of capital per worker has grown in a clear and sustained manner only until the end-1970s and fell afterwards until the trough of the Great Recession." This has led to declining worker productivity and lower wages for many workers. In more recent years, covid lockdowns impacted lower-income workers the most, and lockdowns are likely to raise overall mortality among these workers, as well, even years after the lockdowns ended. Unemployment and intermittent employment is tied to higher mortality rates and disability in both the medium and long terms. Finally, a powerful factor is the central bank's monetary policy which has been linked to a rising gap between higher-income workers and lower-income ones. Easy-money policy has been especially damaging to wealth-building for lower-income groups, as Karen Petrou notes in her book Engine of Inequality: Ultra-low [interest] rates fundamentally eviscerated the ability of all but the wealthy to gain an economic toehold; instead they lead investors to drive up equity and other asset prices to achieve their return … but average Americans hold little, if any, stock or investment instruments. Instead, they save what they can in bank accounts. The rates on these have been so low for so long that these thrifty, prudent households have in fact set themselves back with each dollar they save. Pension funds are just as hard-hit meaning not only that average Americans can't save for the future, but also that the instruments on which they count for additional security are unlikely to meet their needs. But not all can be blamed on economic policy. The importance of marriage as a factor in workforce participation illustrates that some aspects of declining workforce participation lie beyond mere economics. Marriage rates for the middle class have continued to fall even in periods when median wages have increased—such as the 1990s. These trends are tied to changes in ideology, religious observance, and a host of social factors. Other factors such as rising drug addiction and obesity affect workforce participation as they are tied to disability and poor health, often at elevated rates among lower-income workers. In other words, government policy certainly plays a sizable role in declining male workforce participation, but changing American culture cannot be ignored. Tyler Durden Thu, 12/22/2022 - 18:20.....»»

Category: worldSource: nytDec 22nd, 2022

The Foghorn Is Blowing, But Few Heed Its Warning

The Foghorn Is Blowing, But Few Heed Its Warning Authored by Michael Lebowitz via, Often, boaters take the warning blow of a foghorn for granted and disregard it. However, all skippers seem to pay attention when they hear the scraping of their hull against a reef. The yield curve is a financial foghorn of sorts. Currently, it is bellowing that something is drastically wrong. As evidenced by earnings growth estimates for 2023, financial skippers are going about their business as if a recession is unlikely. Yield curve foghorns are often unheeded by investors as they blow well before danger is apparent. As such many investors are unprepared when problems arise. Today, the 10-year/3-month UST yield curve is at its most negative level since 1982, as we share below. The blast of the financial foghorn is deafening, but the financial waters and economic environment appear relatively calm. Given the strong possibility that history repeats and the yield curve correctly portends danger, now is the time to examine how and when the yield curve will un-invert, or steepen, and what that might mean for asset prices. In this article, we use the terms un-invert and steepen interchangeably to describe the yield curve rising from a negative value to a positive one.   The Market’s Foghorn An inverted yield curve, whereby the yield of a shorter maturity bond is higher than a longer maturity bond, is an omen that something is wrong. Yield curves are often positively sloped. In free markets, investors should receive a higher yield for taking on the potential risks that grow with time. Since 1986, the 10yr/3m yield curve has been in a state of inversion less than 5% of the time. The three graphs below show why an inverted yield curve is a foghorn worth following, even if the current environment doesn’t appear too worrisome. Since 1986 every yield curve inversion has been followed by a recession. We only show the last four inversions, but be mindful that each of the previous eight inversions led to a recession. However, and this is a common theme in the following graphs, economic and financial hardship did not occur until after the curve steepened to a positive slope. It has taken anywhere from three to thirteen months and .53% to 2% steepening until a recession began. The next graph shows stock market drawdowns follow a similar pattern. In all four inversions, the maximum drawdown in the market occurred after the curve started to steepen. Lastly, and not surprisingly, stock earnings tend to fall appreciably after the yield curve troughs and regains its positive slope. How Do Curves Un-invert? Quickly and in a “V” shaped pattern, as the graphs above show. The following graph compares the three un-inversions side by side to appreciate the speed and degree to which they normalize. The black vertical lines break the data into one-year increments. We leave out the 2019 example due to the unusual circumstances surrounding the pandemic and the massive fiscal and monetary responses. Based on the three episodes, we should expect the curve to be positive by at least 1% and as much as 2.75% within one year of the maximum inversion. Within three years, a +3.5% slope is likely. In the three cases, the large majority of the curve steepening was due to the short three-month rate plummeting. On average, the ten-year yield fell by 61 basis points, and the 3-month yield fell by 4.62%. How Will the Curve Un-invert This Time? Currently, Fed Fund futures forecast a terminal Fed Funds rate near 5%. Assuming that comes to fruition and the ten-year yield stays put, the yield curve will further invert to negative 1.50%. This is where the analysis gets both problematic and concerning. What conditions might cause the yield curve to normalize? The following scenarios help us consider the future shape of the curve. Soft Landing In this scenario, the economy slows or enters a very mild and short-lived recession. At the same time, the inflation rate falls rapidly. Assuming this plays out, which we assign a low probability, we expect the Fed to keep rates at 5% or so until inflation is much closer to 2%. In the soft-landing scenario, the 3-month yield is likely to stick around 5%, and the curve might further invert as longer-term yields fall due to weak economic growth and lower inflation. The curve would steepen when the Fed is comfortable that they have slain inflation and can lower the Fed Funds rate. The steepening would be gradual in this scenario, not “V” shaped like the prior inversions. Something Breaks In this outcome, which we think is most likely, liquidity reductions and sharply deteriorating economic activity cause financial instability. Under such a scenario, something breaks. It may be a market, a significant financial institution, or even a foreign country. Whatever the cause, the Fed would lower rates aggressively to stop a Lehman-like contagion. Such would likely entail ending QT and possibly starting QE to boost liquidity in the system. Short-term yields would plummet as the Fed lowers rates. Longer-term yields would initially fall as investors seek the safety of U.S. Treasuries. Lower inflation, weak economic growth, and a flight to quality/safety argue for much lower rates. However, the monetary and fiscal response, if aggressive like in 2020, might stoke inflationary fears. We saw in the three prior inversions that long yields might decline moderately, but short-end yields could plummet to near 0%. Fed Forces a Steeper Curve An inverted yield curve poses problems for banks as it shrinks their net interest margins (NIM), which makes lending less profitable. To help boost their profitability and fortify their balance sheets, the Fed might want to steepen the curve by forcing long-term yields higher. Per Michael Kao, there is about $2.7 to $3 trillion of floating-rate corporate debt outstanding and a similar amount of floating-rate mortgages. As rates reset higher for floating-rate borrowers, bankruptcies will rise. At the same time, banks are seeing increasing losses on corporate loans and debt, their margins are severely contracting. By steepening the yield curve via higher long-term rates, the Fed could improve bank margins which may help banks better weather a credit storm. What happens when you cut off a bank’s NIM lifeblood and saddle it with loan losses at the same time? CREDIT CONTRACTION ACROSS ALL LENDING ACTIVITIES AND POSSIBLY EVEN BANK BANKRUPTCIES. – Michael Kao Two More Warnings We share two graphs to provide further credence to the roaring yield curve foghorn. The first graph shows that the last eight times the Chicago PMI report was below 40, as it is now, a recession occurred. While the yield curve tends to precede the recession by months or even a year, this graph argues a recession may be on our doorstep. The second graph from Jim Bianco shows the recession odds in 2023 are greater than at any time since 1970. Summary Bear markets do not end until recessions start. The yield curve, Chicago PMI, and other analyses argue it’s a matter of when but if a recession occurs. Based on what we have shared, those claiming the market has already bottomed better hope this time is different. The financial foghorn is blowing. Historical odds greatly favor a recession, stock market drawdown, and a much lower Fed Funds rate. As they warn in the HBO series Game of Thrones- “Winter is Coming,” the foghorn tells us so. Tyler Durden Wed, 12/14/2022 - 08:25.....»»

Category: dealsSource: nytDec 14th, 2022

Marauding Bands Of Looters Are Stealing Billions Of Dollars Worth Of Merchandise As America Descends Into Lawlessness

Marauding Bands Of Looters Are Stealing Billions Of Dollars Worth Of Merchandise As America Descends Into Lawlessness Authored by Michael Snyder via, Three years ago, I bet that 99 percent of my readers had never heard of ORC.  Of course by now almost everyone knows that ORC stands for “organized retail crime”, and it is prompting retailers to permanently shut down stores all over the nation.  Right now, retail theft is happening from coast to coast on a scale that we have never seen in our entire history.  Marauding bands of looters are barging into stores, grabbing as much merchandise as they can possibly carry, and then loading it into their vehicles.  Online marketplaces make it easier than ever to turn stolen goods into cash, and at this point organized retail crime has become a multi-billion dollar business.  As I have repeatedly warned my readers, America is descending into lawlessness.  The thin veneer of civilization that we all depend upon on a daily basis is rapidly disappearing, and if we stay on this path our society will soon be completely unrecognizable. Every year, organized retail crime gets even worse.  According to Fox Business, the number of ORC incidents in 2021 was 26.5 percent higher than in 2020… ORC incidents soared 26.5% on average in 2021, with 81.2% of retailers surveyed reporting “somewhat more” or “much more” ORC-associated aggression and violence year-over-year, according to the survey. Of course things are even worse here in 2022, and this is particularly true in states where shoplifting laws are very soft. For example, in Portland some stores are often victimized “more than once a day”… Some of the hot items are perfumes and expensive handbags. Often, stores are victimized daily and sometimes more than once a day. A local pastor whose window looks out on the local Nike store says he sees thieves running out of the store with their arms full of stolen stuff all the time. And the excellent KGW-TV story makes the point that this stolen stuff is not to feed hungry children. It is organized theft. The stuff gets sold online and in flea markets. Needless to say, it is almost impossible to run a profitable business in such an environment, and many store owners are throwing in the towel. In recent days, one store owner in Portland made headline news all over the nation by posting a note that explained exactly why the store is being closed… A Portland, Oregon, clothing shop permanently shut down this month after facing a string of break-ins that has left the store financially gutted, according to a note posted to the front of the store. “Our city is in peril,” a printed note posted on Rains PDX store reads, according to KATU2. “Small businesses (and large) cannot sustain doing business, in our city’s current state. We have no protection, or recourse, against the criminal behavior that goes unpunished. Do not be fooled into thinking that insurance companies cover losses. We have sustained 15 break-ins … we have not received any financial reimbursement since the 3rd.” Sadly, organized retail crime is not just plaguing cities on the west coast. This is truly a national phenomenon, and large retail chains are losing giant mountains of money because of it. In fact, Target recently caused quite a stir when it admitted that organized retail crime accounts for most of the 400 million dollars that it has lost from shoplifting over the past year… Shoplifting is such a big problem, that last week, when officials from Target were explaining why the company’s profit fell by 50% in the third quarter, they mentioned shoplifting as a contributing cause. Target Chief Growth Officer Christina Hennington said Target shoplifting has jumped about 50% year over year. Target estimates shoplifting has cost the retailer $400 million and most of that, Hennington said, has come from organized retail theft. If things are already this bad, what will happen when economic conditions in this country really start deteriorating in 2023 and beyond? The more desperate people become, the worse organized retail crime will get. At this point, thievery has reached such epic proportions that some retailers are actually considering locking up all of their merchandise… In September, on an earnings call with investors, Rite Aid’s executive vice president of retail, Andre Persaud, floated an idea to improve the chain’s performance in New York City: turn the drugstore into one giant vending machine in order to fight shoplifting. “We’re looking at literally putting everything behind showcases to ensure the products are there for customers to buy,” Persaud said. Does that sound familiar? Many big-city pharmacy chains are halfway there, with plexiglass cases that have mushroomed over even low-priced household goods like shampoo and deodorant—to say nothing of laundry detergent, razor blades, and baby formula. It’s like shopping at a pharmacy 100 years ago, with a white-aproned clerk pushing around a ladder to grab your tinctures and tonics, except now it’s a minimum-wage cashier with a key ring. These days, you press a red button and a loudspeaker tells the store that you have a foot fungus. In July, a Manhattan Duane Reade made international news when it placed a can of Spam—Spam!—in a theft-deterrent plastic case. If this trend catches on, the way that we shop could change forever. The days of just going in and quickly gathering what you need could soon be gone permanently. And it is all because our society is becoming completely and utterly lawless. Earlier today, I was deeply saddened to read about a particularly horrific crime that happened in Philadelphia on the day after Thanksgiving… A Philadelphia parking authority officer was shot in the head in broad daylight by a thug in the City of Brotherly Love last Friday. The suspect was caught on a surveillance camera walking up behind the 37-year-old male parking official and shooting him in the head at point-blank range at 3.50pm on the 4500 block Frankford Avenue the day after Thanksgiving. The officer, who was on duty at the time of the crime, is seen in video footage immediately collapsing onto the sidewalk before help arrives. The fabric of our society is coming apart at the seams all around us, but most people don’t seem to care. Most people are just so self-obsessed that they can’t even see that our society is rotting and decaying at a truly frightening pace. A highly civilized society is extremely difficult to create, but it is very easy to lose. Unfortunately, most Americans are not going to realize this until it is far too late. *  *  * It is finally here! Michael’s new book entitled “End Times” is now available in paperback and for the Kindle on Amazon. Tyler Durden Fri, 12/02/2022 - 07:20.....»»

Category: blogSource: zerohedgeDec 2nd, 2022

Futures Rise On Expectations For A Post-Midterm Rally

Futures Rise On Expectations For A Post-Midterm Rally US equity futures rose as bond yields dipped as Americans headed to the polls on Tuesday for midterm elections where Republicans are expected to gain as many as 75 seats in the House and 11 in the Senate, while traders were also bracing for a key CPI print later this week. Nasdaq 100 futures were up 0.5% by 7:30 a.m. in New York, while S&P 500 futures rose 0.2% to trade at 3,820 and above a key CTA threshold level (as Goldman notes overnight "CTA short term momentum flipped from negative to positive w/ the close north of 3804"). The US Dollar was little changed as was the yield on the 10-year Treasury after rising for the past four days. Among notable movers in premarket trading, NVidia climbed in early New York trading as it began producing a processor for China. Bitcoin tumbled as part of a crypto selloff trigged by the growing Binance-FTX feud. Lyft plunged 20%, on track to hit their lowest level on record. The ride-sharing company’s 3Q results appear to confirm it is losing market share to rival Uber and raise questions on its outlook in 4Q and beyond, analysts say. TripAdvisor shares also cratered after the online travel agency issued a disappointing fourth-quarter forecast. Take-Two Interactive Software Inc. fell 18% and was set for its biggest drop in 13 years after the video-game developer’s results showed weakness in its mobile business, which drove a cut to its bookings guidance. Lordstown Motors, on the other hand, surged after the EV maker struck a deal to sell a $170 million stake to Foxconn and give two board seats to its manufacturing partner, boosting investor confidence over its prospects. SolarEdge shares rise 9.6% in US premarket trading after third-quarter results that analysts say were strong and indicated a further improvement in margins for the solar company in the future. Take-Two shares drop 18% in US premarket trading. The video-game developer’s results show weakness in its mobile business, which drove a cut to its bookings guidance, though analysts remain positive on its pipeline of future releases. Video-game stocks could be in focus on Tuesday after Take-Two reduced its full-year net bookings guidance, while Nintendo cut its forecast for sales of Switch consoles by 10%. Keep an eye on stocks like Electronic Arts (EA US), Roblox (RBLX US), AppLovin (APP US). Five9’s shares decline 13% in premarket trading as reduced guidance indicates a slowdown ahead for the cloud software firm against a tough macro picture, with Jefferies saying that the outlook was “worse than feared.” Still, some analysts think there may be an opportunity to buy shares on any weakness. Lyft shares drop about 18% in US premarket trading, on track to hit their lowest level on record. The ride-sharing company’s 3Q results appear to confirm it is losing market share to rival Uber and raise questions on its outlook in 4Q and beyond, analysts say. TripAdvisor shares slump 19% in premarket trading after the online travel agency reported third-quarter results. While revenue for the period came in ahead of estimates, the fourth-quarter guidance disappointed, with analysts noting that increased spending on Viator was the main reason for the soft outlook. Cryptocurrency- exposed stocks fall in US premarket trading as a selloff among digital currencies spreads to Bitcoin and Ether. Investors are paring risky bets ahead of US midterm elections and following a renewed slump in cryptocurrency exchange FTX’s token. Riot Blockchain declines 4.9%, Marathon Digital (MARA US) -4.8%, Coinbase (COIN US) -2.1%, Hut 8 Mining (HUT CN) -4.5% Watch US semiconductor stocks after peer Nvidia began making a chip for China that the company said meets a US export ban, boosting hopes that companies impacted won’t see a sizable hit to their revenues from the curbs. Keep an eye on stocks including Intel (INTC US), Qualcomm (QCOM US), Advanced Micro Devices (AMD US), Lam Research (LRCX US), Applied Materials (AMAT US), KLA (KLAC US). Investors will be closely monitoring the outcome of the midterm vote while the CPI reading will be significant in assessing the impact of Fed hikes on inflation. President Joe Biden acknowledged that Democrats face a “tougher” challenge holding the House than the US Senate. Polls pointing to Republicans winning at least one chamber of Congress provide a potential catalyst for lower bond yields and higher equity prices, according to Morgan Stanley’s Michael Wilson, who said that a "clean sweep" by the Republicans could greatly increase the chance of fiscal spending being frozen and historically high budget deficits being reduced, fueling a rally in 10-year Treasuries that can keep the equity market rising. "The US debt burden could stop the Democrats from putting in place many economic reforms that they would’ve otherwise, if Republicans are sufficiently crowded to block them moving forward," Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “Hence, slowing debt under GOP could slow growth.” That said, sentiment has improved in recent days, and major equity markets aren’t likely to see “another big leg down” as a lot of the bad news seems to be priced in, according to Altaf Kassam, head of EMEA investment strategy and research at State Street Global Advisors.  The Fed is likely to shift away from rate increases after the effects of hikes start showing up, especially in the second half of next year, he said. “Equity markets have already kind of started to anticipate that, so if you are patient you might miss out on the beginning of a rally, but that’s when we think it’s going to happen,” he told Bloomberg TV. Tuesday’s two-way moves in Treasuries, however, underscored the fragile sentiment in markets where the Federal Reserve’s monetary tightening remains the biggest headwind. Thursday’s consumer-price-index data will offer the next cue for traders even as money markets are raising their peak-rate wagers.  The inflation reading is coming after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone. “Inflation is going up. It may be coming down periodically. But it’s going up,” Richard Harris, chief executive of Port Shelter Investment Management, said on Bloomberg Television. “The market is kind of uncertain -- it’s hoping for the best but really should be preparing for the worst.” In Europe, tech, telecoms and utilities are the strongest performing sectors while energy and miners lag. Euro Stoxx 50 is little changed. FTSE 100 lags peers, dropping 0.2%. Here are some of the biggest European movers today: BE Semi shares rise as much as 6.5%, hitting the highest in three months and leading gains in the Stoxx 600 Tech index, as Morgan Stanley initiates coverage with an overweight rating Pandora gains as much as 8.8%, the most since May, after 3Q net income beat estimates. The Danish jeweler said that despite macroeconomic and geopolitical uncertainty, the shopping patterns of its consumers are so far largely unchanged. AB Foods jumps as much as 6.7%, the most since March 9, after the UK company announced a £500m share buyback. The amount was bigger than Citi had expected, while RBC said the repurchase program will be well received. Coca-Cola HBC gains as much as 4.2%, among the top performers in the FTSE 100 Index, after the bottler reported third-quarter sales that beat estimates and said it now sees FY comparable Ebit in the range of €860m-€900m. Persimmon falls as much as 9.3% after the homebuilder’s trading update flagged rising cancellations, falling sales rates and prices, increased provisions for cladding remediation and changes to the capital return policy which Morgan Stanley (underweight) says points to a “meaningful decline” in the FY23 dividend. DCC drops as much as 8.7%, the most since March 2020, after 1H results that RBC says came in slightly below expectations. Bayer falls as much as 5%, the most intraday since Aug. 29, after reporting results that beat estimates while reiterating guidance given in August -- leaving limited room for any changes to consensus expectations, according to Morgan Stanley. Direct Line drops as much as 7.8%, the most intraday since July, after the insurer’s gross written premium for the third quarter was weaker than expected due to lower motor premiums. Shares of peer Admiral Group also fall. Asian stocks also rose amid investor optimism that the potential outcome of the US midterm elections could be good for equities. Chinese shares, meanwhile, pulled back after a two-day rally as pandemic concerns flared once again.  The MSCI Asia Pacific Index advanced as much as 0.8%, poised for a third day of gains, driven by technology stocks. Benchmarks in Japan, South Korea and Taiwan led gains, while Indian markets were closed for a holiday. China’s Covid cases surged by the most since April, halting a recent rally in the Hong Kong and mainland markets. Chinese shares had been rising on growing hopes for an eventual reopening even as health officials reiterated a strict adherence to Covid Zero policy. The market is also wagering that a US Congress split between Democrats and Republicans could be good for stocks. A post-election rally will provide some respite for investors amid concerns over the Federal Reserve’s monetary-policy tightening. “Gridlock cross-checks each party’s ‘worst impulses,’ and less activist fiscal policy is conducive to lower market volatility,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “That could be particularly helpful in 2022 and 2023 to the extent it calms rates volatility.” Japanese equities climbed for a second day, following US peers higher as investors awaited the outcome of US midterm elections and further direction on Federal Reserve policy. The Topix rose 1.2% to close at 1,957.56, while the Nikkei advanced 1.3% to 27,872.11. Sony Group Corp. contributed the most to the Topix gain, increasing 3.3%. Out of 2,165 stocks in the index, 1,662 rose and 410 fell, while 93 were unchanged. “Japanese stocks followed the gain in overseas stocks,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “There seems to be more buybacks after the release of employment statistics that investors were originally cautious about.” In FX, the dollar consolidates and is marginally firmer against most majors; the Bloomberg Dollar Spot Index swung between gains and losses after touching a seven-week low. The greenback advanced against all of its Group-of-10 peers apart from the yen. The euro weakened to trade around parity versus the dollar. Bunds and Italian bond curves twist- flattened modestly. One trader has bought an upside strategy in Euribor calls that seeks to profit from the ECB easing policy rates significantly by the middle of 2024 The pound was among the worst performers, while gilts were steady. The Debt Management Office kicked off a 15-year syndication in a busy week for supply. UK retailers said sales growth slowed in October as a surge in prices pushed more consumers to focus on essentials instead of new clothing and household accessories. Bank of England Chief Economist Huw Pill said market turmoil in the UK in recent weeks led to some “de-anchoring” of inflation expectations, and the central bank is working hard to tamp down those views; Pill speaks twice today The Australian dollar erased a loss. It earlier slumped after the nation’s consumer sentiment tumbled to the lowest level in 2-1/2 years and business confidence also weakened as higher interest rates and surging inflation stoke concern about the nation’s economic outlook In rates, fixed income trading was fairly muted; Treasury yields are flip to slightly cheaper on the day, follow wider drop in bunds after Germany plans to more than double the 2023 net debt to €45 billion. US 10-year yields back up to around 4.22%, cheaper by less than 1bp on the day while bunds underperform by 2bp in the sector as bund futures test session lows In commodities, WTI falls 1.2% to near $90.73. Spot gold falls roughly $5 to trade near $1,671/oz.  Oil futures are softer intraday as DXY picked up overnight and in early European trade, whilst China’s COVID woes remain a grey cloud for the complex, with daily new cases in China rising to a six-month high for Sunday. Spot gold moves in tandem with the Buck and oscillates on either side of its 50 DMA at USD 1,672/oz today in the run-up to the midterms. Base metals are mixed with LME copper trading with mild gains just under the USD 8,000/t mark. To the day ahead now, and the highlight will be the US midterm elections. From central banks, we’ll hear from the ECB’s Nagel and Wunsch, as well as BoE chief economist Pill. Otherwise, data releases include Euro Area retail sales for September, and earnings releases include Disney. Market Snapshot S&P 500 futures up 0.2% to 3,821.00 STOXX Europe 600 up 0.2% to 419.27 MXAP up 0.7% to 143.54 MXAPJ up 0.4% to 461.67 Nikkei up 1.3% to 27,872.11 Topix up 1.2% to 1,957.56 Hang Seng Index down 0.2% to 16,557.31 Shanghai Composite down 0.4% to 3,064.49 Sensex up 0.4% to 61,185.15 Australia S&P/ASX 200 up 0.4% to 6,958.87 Kospi up 1.1% to 2,399.04 German 10Y yield down 0.1% at 2.34% Euro down 0.2% to $0.9999 Brent Futures down 0.9% to $97.06/bbl Gold spot down 0.3% to $1,670.56 U.S. Dollar Index up 0.20% to 110.34 Top Overnight News from Bloomberg Donald Trump said on the eve of US midterm elections that he would be making a “big announcement” next week, all but confirming his widely anticipated third White House bid that he’s been teasing for weeks The term structures in the major currencies remain inverted as US risk events, including midterm elections and a key inflation report, make the case for long gamma exposure in the front-end The ECB will start reducing its bond holdings through so-called quantitative tightening “sooner or later, for sure in 2023,” Vice President Luis de Guindos tells Politico in an interview The ECB needs to continue increasing interest rates even if that weighs on economic output, according to Bundesbank President Joachim Nagel Japan’s cabinet approved a 29.1 trillion yen ($198 billion) extra budget to fund an economic stimulus package that aims to ease the impact of inflation on people and companies A more detailed look at global markets courtesy of Newsquawk APAC stocks were mixed as the region only partially sustained the early momentum seen following the positive handover from Wall St with Chinese stocks pressured overnight as infections continued to rise. ASX 200 traded marginally higher with the index kept afloat by strength in the top-weighted financial industry and gains in consumer-related sectors. Nikkei 225 was firmer and edged closer to the 28,000 level as participants digested earnings releases and shrugged off mixed household spending data although Average Cash Earnings accelerated. Hang Seng and Shanghai Comp were subdued despite the reopening rumours which officials pushed back against, while the number of daily new infections continued to climb from 6-month highs. Top Asian News Hong Kong Chief Executive Lee dismissed calls to drop the health code for travellers and mask-wearing rules, according to SCMP. Japanese PM Kishida is to approve USD 198bln extra budget for the stimulus plan, according to Bloomberg. Furthermore, Japan's government is to add JPY 1.4tln of fiscal loans for the second extra budget and will issue JPY 20.4tln in deficit-covering bonds, according to a draft cited by Reuters. Japan's cabinet has approved a second supplementary budget with JPY 29.1tln (in-line with prior reports) for FY to fund an economic stimulus package, according to MoF. BoJ Summary of Opinions stated that Japan's consumer inflation is likely to continue accelerating as firms pass on higher costs. Furthermore, consumer inflation is likely to slow back below 2% next fiscal year due to the impact of slowing global growth but cannot rule out chances that prices will sharply overshoot forecasts. RBNZ reappointed Governor Orr as the head for another five-year term, according to Reuters. Chinese interbank market regulator is to boost support by financing to private firms, will initially support around CNY 250bln of bond financing by private firms including property developers; supported by central bank refinancing. Major bourses in Europe portray a mixed picture with no clear conviction seen heading into the US mid-term elections. Sectors are mostly firmer (vs a mostly lower open) with Tech leading the charge with additional help from declining bond yields. Energy and Basic Resources sit as the sectoral laggards amid declines in underlying commodity prices. US equity futures post mild gains but with price action contained; ES +0.1%. Top European News BoE urged lenders to do more to avoid a repeat of the pensions fund turmoil seen in September, according to FT. UK PM Sunak is expected to increase pensions and benefits in line with inflation, according to The Times. UK Chancellor Hunt is to announce a tax raid on inheritance in the Autumn statement, according to The Telegraph and FT. UK plan to review or repeal all EU laws by end-2023 suffered another setback after 1,400 additional pieces of legislation were discovered, according to FT. UK and France are reportedly in the final stage of reaching an agreement concerning illegal English Channel crossing, according to FT. ECB's de Guindos says ECB will continue raising rates to levels that ensure price stability; levels will depend on data, the evolution of inflation, economic conditions, demand, and energy prices, via Reuters. ECB's Nagel says he will do his utmost to make sure the ECB does not let up in the inflation fight, according to Reuters. SNB's Jordan says policy decisions must be based on firm commitment to price stability objective; policy decisions must not be based exclusively on inflation forecast, via Reuters. BoE Chief Economist Pill says there is a danger of self-fulfilling dynamics on wage-cost nexus. Cannot declare victory against second-round effects but is entering a recession. Pill reiterated that there is more to do, and need to raise rates to tighten monetary policy. Pill is sceptical that front-loading hikes has big expectations effect, via Reuters. UBS (UBSG SW) branches have been searched by German criminal investigators in relation to sanctioned Russian oligarch Usmanov, according to Der Spiegel; searches related to money laundering. FX DXY gleaned some traction across the board amidst a firmer rebound in Treasury yields, renewed weakness in the Yuan and general consolidation ahead of impending risk events. Yen managed to keep afloat of 147.00 and bucked the overall trend after Japan’s Cabinet approved a second supplementary budget and the BoJ’s SOO highlighted risks of a sharp price overshoot. European G10s sit as the current laggards, with EUR, GBP, and CHF towards the bottom of the bunch. Fixed Income US Treasuries were first off the block in terms of paring more losses from worst levels to turn marginally positive Gilts followed suit as books closed on a well sought after 2038 syndicated offering. Bunds remain depressed in wake of a somewhat mixed Schatz auction given a bigger retention and hefty concession needed to achieve a 1.2 cover ratio for the new 2 year benchmark. Commodities WTI and Brent futures are softer intraday as DXY picked up overnight and in early European trade, whilst China’s COVID woes remain a grey cloud for the complex, with daily new cases in China rising to a six-month high for Sunday. Spot gold moves in tandem with the Buck and oscillates on either side of its 50 DMA at USD 1,672/oz today in the run-up to the midterms. Base metals are mixed with LME copper trading with mild gains just under the USD 8,000/t mark. Chile's Codelco offers Chinese copper buyers 2023 supply at a premium USD 140/t (prev. USD 105/t; +33.3% Y/Y) according to Reuters sources. Geopolitical Ukrainian President Zelensky said it is vital to force Russia to participate in genuine peace negotiations, according to Reuters. White House Press Secretary said US President Biden has no intention of meeting Russian President Putin, while State Department spokesman Price said Russia signals that it is focused on escalation, according to Bloomberg. North Korea’s military denied exporting weapons to Russia in which it stated that it has never exported weapons or ammunition to Russia and has no plans to do so, according to Yonhap. Chinese Foreign Ministry, on President's Xi's visit to Saudi Arabia, says don't know the information referred to, according to Reuters. Chinese President Xi will comprehensively strengthen military training and preparation for any war, according to state media. China's security is increasingly unstable and uncertain. US Event Calendar 06:00: Oct. SMALL BUSINESS OPTIMISM 91.3, est. 91.4, prior 92.1 DB's Jim Reid concludes the overnight wrap It’s been a long two years, but today we’ve finally arrived at the US midterm elections, which is clearly the most important political milestone between the presidential elections. I have my own electoral success story to report as my 7-year old daughter Maisie was voted onto her school council on Friday. I asked her what platform she stood on. She said that she campaigned on having more homework and that the school should have a pet fish. In case you think she’s a swot, nothing can be further from the truth. Getting her to do homework is the most stressful part of every weekend and often brings floods of tears. Maisie cries too. How she got elected on that mandate is beyond me. Maybe the others stood on bringing back corporal punishment! On to weightier matters, as a reminder for our non-US readers, today will see every seat in the US House of Representatives (the lower chamber) up for grabs, along with a third of the seats in the Senate (the upper chamber), on top of the governorships in 36 of the 50 US states. And when it comes to markets, it’s no exaggeration to say that midterm elections are one of the best historic buy signals for equities we have. In fact, in the 19 midterm elections since WWII, the S&P 500 has always been higher one year after the vote. Whether any of those cycles had to contend with the macro tsunami that's coming in the next 12 months is a moot point but it shows the underlying technicals. Currently the Democrats control both chambers in Congress, but by the narrowest of margins. The Senate is currently split 50-50 their way thanks to the tie-breaking vote from Vice President Harris, so the Republicans only need a net gain of one to win the majority there. Meanwhile in the House of Representatives, it was split 222-213 to the Democrats in the 2020 election, meaning the Republicans only need a net gain of five seats to take control. In terms of what’s expected to happen, most forecasters think that the Republicans are likely to win control of the House of Representatives. For instance, FiveThirtyEight’s model gives them an 83% chance of the majority, and Politico’s forecast puts it as “Likely Republican”. In the Senate however, the Republicans are generally seen as having a weaker chance, with FiveThirtyEight’s model giving them a smaller 55% chance of the majority, and Politico’s forecast leaving it as a “Toss-Up”. Part of the reason why the Republicans have a much weaker chance in the Senate relative to the House is because only a third of the Senate is up for election, and most of the seats up for grabs are ones already held by the Republicans, which limits their scope to make net gains from the Democrats. If the Republicans do end up retaking control of either chamber in Congress (or both), the result will likely be legislative gridlock for the next two years, and our US economists do not see any major legislation on economic policy ahead of the 2024 election in this circumstance. Remember that President Biden will still have a veto on legislation, and the Republicans will not have the two-thirds majority in both houses required to override a veto (it’s mathematically impossible in the Senate where only a third of seats are up for grabs). If there is divided government however, one area we might see more action again is the debt ceiling, since there’s a chance that a Republican-controlled Congress use the need to raise the ceiling as leverage to get some of their policy priorities through. See Henry's piece (here) from yesterday for more on that. When it comes to the results, it could be some time before we know the full picture. In fact, for the Georgia Senate race, state law requires the candidate to win over 50% of the vote to win, so if nobody does today then the top two will go to a runoff on December 6, meaning it could theoretically be another month before we find out who controls the Senate if it does hinge on that race like last time. Even absent any runoffs, it’s also possible that it takes some days anyway. Last time at the presidential election, it wasn’t until the Saturday after the Tuesday that we had final confirmation of Biden’s victory. Whatever ends up happening today, there’ll be plenty of extrapolation onto the 2024 presidential election from the results. However, it’s important to remember that 2 years is also a very long time in politics and a number of presidents have come back from very bad midterm results to win re-election. Indeed, the last two Democrats in the White House (Presidents Obama and Clinton) both suffered major midterm losses before coming back to win re-election. So be cautious in saying anything is inevitable! Ahead of the midterms there were some familiar themes in markets, with yields on 2yr US Treasuries up +6.3bps to a post-2007 high of 4.72%, whilst the 10yr yield was up +5.5bps to 4.21% (4.23% in Asia). Those moves were driven pretty much entirely by higher inflation breakevens rather than real rates, and came as Brent crude oil prices traded closer to $100/bbl than at any point since August, intraday, before falling into the close to finish the day slightly lower at -0.66%. The trend towards higher sovereign bond yields was evident in Europe too, where yields on 10yr bunds (+4.9bps), OATs (+3.3bps) and gilts (+7.6bps) all rose on the day. Whilst there was a clear trend in rates, for equities it was a pretty choppy session, with the S&P 500 fluctuating between gains and losses to eventually post a very healthy gain of +0.97%. Cyclical stocks led the way while defensives like Utilities were stark underperformers, falling -1.94%. The Nasdaq advanced for the second straight day for the first time in November, climbing +0.85%. Meanwhile in Europe, the major indices mostly rose, with the STOXX 600 (+0.33%) hitting a 7-week high, but the FTSE 100 (-0.48%) lagged behind amidst a +1.19% rebound in sterling. Asian stock markets are mixed this morning with the Nikkei (+1.42%) sharply higher, notching an 8-week high. The KOSPI (+0.98%) is also trading in positive territory. In China, the Shanghai Composite (-0.52%) and the CSI (-0.75%) are losing ground with the Hang Seng (-0.04%) struggling to gain traction as the speculation about China’s reopening continues to add market volatility. US stock futures tied to the S&P 500 (-0.09%) and NASDAQ 100 (-0.09%) remain rangebound at the time of writing. We have data from Japan showing that household spending rose +2.3% y/y in September coming in slightly lower than market expectations of a +2.6% increase (v/s a +5.1% gain in August). However, household consumption faces increasing inflationary pressures because of a weaker yen with real wages (adjusted for inflation) falling -1.3% y/y in September (v/s -1.8% expected), its sixth-consecutive decline. This was less than August’s -1.7% drop. From the Bank of Japan, the Summary of Opinions released overnight showed that policymakers debated the future exit from ultra-low interest rates and its impact on financial markets amid rising prices. According to the summary, some board members argued that the cost-driven inflationary pressures are broadening with one member stressing that a "big overshoot of inflation cannot be ruled out”. There wasn’t much data of note yesterday, with German industrial production rising by a faster-than-expected +0.6% in September (vs. +0.1% expected). However, the previous month’s contraction was revised to show a worse performance than before. To the day ahead now, and the highlight will be the US midterm elections. From central banks, we’ll hear from the ECB’s Nagel and Wunsch, as well as BoE chief economist Pill. Otherwise, data releases include Euro Area retail sales for September, and earnings releases include Disney. Tyler Durden Tue, 11/08/2022 - 08:06.....»»

Category: dealsSource: nytNov 8th, 2022

Spooky Torts: The 2022 List Of Litigation Horrors

Spooky Torts: The 2022 List Of Litigation Horrors Authored by Jonathan Turley, Here is my annual list of Halloween torts and crimes. Halloween of course remains a holiday seemingly designed for personal injury lawyers around the world and this year’s additions show why. Halloween has everything for a torts-filled holiday: battery, trespass, defamation, nuisance, product liability and more. Particularly with the recent tragedy in South Korea, our annual listing is not intended to belittle the serious losses that can occur on this and other holidays. However, my students and I often discuss the remarkably wide range of torts that comes with All Hallow’s Eve. So, with no further ado, here is this year’s updated list of actual cases related to Halloween. In October 2021, Danielle Thomas, former exotic dancer known as “Pole Assassin” (and the girlfriend of Texas special teams coach Jeff Banks), found herself embroiled in a Halloween tort after the monkey previously used in her act bit a wandering child at the house of horror she created for Halloween. Thomas considers the monkey Gia to be her “emotional support animal.” Thomas goes all out for the holiday and converted her home into a house of horrors, including a maze. She said that the area with Gia was closed off and, as for petting, “no one is allowed to touch her!”  She publicly insisted “No one was viciously attack this a lie, a whole lie! She was not apart of any haunted house, the kid did not have permission to be on the other side of my property!” She even posted a walk-through video of the scene to show the steps that a child would have to take to get to the monkey. Don’t worry folks I got the #MonkeyGate video — Christian Sykes (@ctsykes13) November 2, 2021 She insists in the video that she knows all of the governing legal rules and shows the path in detail. It is not helpful on the defense side: it is not a long path and easy to see how a child might get lost. She later deleted her account (likely after her attorney regained consciousness). The case raises an array of torts including animal liability, licensee liability, negligence, and attractive nuisance claims. In 2022, we often added conversion to the usual torts where multiple versions of the new giant skeleton were stolen, including one particularly ham-handed effort in Austin, Texas caught on video tape: * * * In Berea, Ohio, the promoters of the 7 Floors of Hell haunted house at the Cuyahoga County Fairgrounds appreciate realism but one employee took it a bit too far. An actor brandished this real bowie knife as a prop while pretending to stab an 11-year-old boy’s foot. He then stabbed him. The accident occurred when the actor, 22, approached the boy and stabbed at the ground as a scare tactic. He got too close and accidentally cut through the child’s shoe, piercing a toe. The injury was not serious since the boy was treated at the scene and continued through the haunted house. The case raises an interesting question of “respondeat superior” for the negligent acts by employees in the course of employment. The question is what is in the scope of employment.  The question is often whether an employee was on a “detour” or “frolic.”  A detour can be outside of an employer’s policies or guidelines but will be the basis for liability as sufficiently related to the employment.  A frolic is a more serious deviation where the employee is acting in his own capacity or for his own interests. In this case, the actor was clearly within his scope of employment in trying to scare the visitors. However, he admitted that he bought the knife in his personal capacity and agreed it “was not a good idea” to use it at the haunted house, according to FOX 8. That still does not negate the negligence — both direct and vicarious liability. There was a failure to monitor employees and safeguard the scene. His negligence is also likely attributable to the employer. Finally, this would constitute battery as a reckless, though unintended, act. * * * In 2020, parents in Indiana were given a warning in a Facebook post that the Indiana State Police seized holiday edibles featuring packaging that resembles that of actual name brands — but with the word “medicated” printed on the wrapper along with cannabis symbols. The packaging makes it easy for homeowners to confuse packages and give out drugged candy.  Indeed, last year, two children were given THC-infused gummies while trick-or-treating, according to police in Waterford, Conn.. Such candies include the main active ingredient linked to the psychedelic effects of cannabis – the plant from which marijuana is derived. Even an accidental distribution of such infused candies would constitute child endangerment and be subject to both negligence and strict liability actions in torts. * * * I previously have written how the fear of razor blades in apples appears an urban legend. Well, give it enough time and someone will prove you wrong. That is the allegation of Waterbury, Connecticut police who say that Jason A. Racz, 37, put razor blades in candy bags of at least two trick-or-treaters. Racz’ razor defense may not be particularly convincing to the average juror. According to police, “Racz explained that the razor blades were accidentally spilled or put into the candy bowl he used to hand out candy from.” However, police noted that he “provided no explanation as to how the razor blades were handed out to the children along with the candy.” The charge was brought soon after Halloween in 2019. Racz is now charged with risk of injury to a minor, reckless endangerment and interfering with a police officer. He could also be charged with battery and intentional infliction of emotional distress, but it is not clear if any children were injured. *  *  * Steven Novak, an artist from Dallas, Texas, believes that Halloween should be a bit more than a traditional plastic pumpkin and a smiling ghost.  Police were called to his home in Texas over a possible murder. They found a dummy impaled on a chainsaw with fake blood; another dummy hanging from his roof; a wheelbarrow full of fake dismembered body parts and other gory scenes.  Neighbors called the display too traumatizing.  Police responded by taking pictures for their families. A tort action for intentional infliction of emotional distress is likely to fail. There must be not just outrageous conduct but conduct intended to cause severe emotional distress. Courts regularly exclude injuries associated with the exercise of free speech or artistic expression . . . even when accompanied by buckets of fake blood. *  *  * The Dorney Park and Wildwater Kingdom in Pennsylvania tells customers that, if they come to their Halloween Haunt, “Fear is waiting for you.” In 2019, a new case was filed by Shannon Sacco and her daughter over injuries sustained from “unreasonable scaring.” They are seeking $150,000. The Allentown Morning Call reported that “M.S.” went with friends to the amusement park and was immediately approached by costumed characters. She said that she told them that she did not want to be scared and backed away. A little further on into the park however a costumed employee allegedly ran up behind her and shouted loudly. The startled girl fell forward and suffered what were serious but unspecified injuries. She alleges ongoing medical issues and inability to return to fully functioning activities. The lawsuit also alleges that the park failed to inform Sacco or her daughter that they could buy a glow-in-the-dark “No Boo” necklace to ward off costumed employees. The obvious issue beyond the alleged negligence of the Park is the plaintiffs’ own conduct. Pennsylvania is a comparative negligence state so contributory negligence by the plaintiffs would not be a bar to recovery. See Pennsylvania General Assembly Statute §7102. However, it is a modified comparative negligence state so they must show that they are 50 percent or less at fault. If they are found 51 percent at fault, they are barred entirely from recovery. Even if they can recover, their damages are reduced by the percentage of their own fault in going to a park during a Halloween-themed event. *  *  * In 2019, there is a rare public petition to shutdown a haunted house that has been declared to be a “torture chamber.” The move to “shut down McKamey Manor” that has been signed by thousands who believe Russ McKamey, the owner of McKamey Manor, has made his house so scary that it constitutes torture, including an allegation of waterboarding of visitors. The haunted house requires participants to get a doctor’s note and sign a 40-page waiver before they enter. People are seeking the closure of the houses located in Summertown, Tennessee and Huntsville, Alabama. McKamey insists that it is just a “crazy haunted house” and stops well short of the legal-definition of torture. The question is whether consent vitiates any extreme frights or contacts. He is also clear in both the waiver and the website that the house is an “extreme haunted attraction” for legal adults who “must be in GREAT HEALTH to participate.” Not only do people enter with full knowledge but there is no charge. McKamey owns five dogs and only requires a bag of dog food for entry. Presumably the food is cursed. *  *  * An earlier case was recently made public from an accident on October 15, 2011 in San Diego. Scott Griffin and friends went to the Haunted Trail in San Diego. The ticket warns of “high-impact scares” along a mile path with actors brandishing weapons and scary items. Griffen, 44, and his friends went on the trail and were going out of what they thought was an exit. Suddenly an actor jumped out as part of what the attraction called “the Carrie effect” of a last minute scare. While Griffen said that he tried to back away, the actor followed him with a running chain saw. He fell backwards and injured his wrists. The 2013 lawsuit against the Haunted Hotel, Inc., in the Superior Court of California, County of San Diego, alleged negligence and assault. However, Superior Court Judge Katherine Bacal granted a motion to dismiss based on assumption of the risk. She noted that Griffin “was still within the scare experience that he purchased.” After all, “Who would want to go to a haunted house that is not scary?” Griffen then appealed and the attorney for the Haunted Hotel quoted Hunter S. Thompson: “Buy the ticket, take the ride.” Again, the court agreed. In upholding the lower court, Justice Gilbert Nares wrote, “Being chased within the physical confines of the Haunted Trail by a chain saw–carrying maniac is a fundamental part and inherent risk of this amusement. Griffin voluntarily paid money to experience it.” *  *  * In 2018, a case emerged in Madison, Tennessee from the Nashville Nightmare Haunted House.   James “Jay” Yochim and three of his pals went to the attraction composed of  four separate haunted houses, an escape room, carnival games and food vendors.  In the attraction, people are chased by characters with chainsaws and other weapons.  They were not surprised therefore when a man believed to be an employee in a Halloween costume handed Tawnya Greenfield a knife and told her to stab Yochim.  She did and thought it was all pretend until blood started to pour from Yochim’s arm. The knife was real and the man was heard apologizing “I didn’t know my knife was that sharp.” It is not clear how even stabbing with a dull knife would be considered safe. The attraction issued a statement: “As we have continued to review the information, we believe that an employee was involved in some way, and he has been placed on leave until we can determine his involvement. We are going over all of our safety protocols with all of our staff again, as the safety and security of all of our patrons is always our main concern. We have not been contacted by the police, but we will cooperate fully with any official investigation.” The next scary moment is likely to be in the form of a torts complaint.  Negligence against the company under respondeat superior is an obvious start. There is also a novel battery charge where he could claim that he was stabbed by trickery or deceit of a third person. There are also premises liability issues for invitees.  As for Greenfield, she claims to have lacked consent due to a misrepresentation.  She could be charged with negligence or a recklessness-based theory of battery, though that seems less likely.  Finally, there is an interesting possible claim of negligent infliction of emotional distress in being tricked or misled into stabbing an individual. *  *  * Last year, a 21-year-old man surnamed Cheung was killed by a moving coffin in a haunted house in Hong Kong’s Ocean Park.   The attraction is called “Buried Alive” and involves hopping into coffins for a downward slide into a dark and scary space. The ride promises to provide people with the “experience of being buried alive alone, before fighting their way out of their dark and eerie grave.” Cheung took a wrong turn and went backstage — only to be hit by one of the metal coffins.  The hit in the head killed Cheung who was found later in the haunted house. While there is no word of a tort lawsuit (and tort actions are rarer in Hong Kong), the case is typical of Halloween torts involving haunted houses.  The decor often emphasizes spooky and dark environs which both encourage terror and torts among the participants.  In this case, an obvious claim could be made that it is negligence to allow such easy access to the operational area of the coffin ride — particularly in a dark space.  As a business invitee, Cheung would have a strong case in the United States. *  *  * A previous addition to the Spooky torts was the odd case of Assistant Prosecutor Chris White. White clearly does not like spiders, even fake ones. That much was clear given his response to finding fake spiders scattered around the West Virginia office for Halloween. White pulled a gun and threatened to shoot the fake spiders, explaining that he is “deathly afraid of spiders.” It appears that his arachnophobia (fear of spiders) was not matched by a hoplophobia (fear of firearms). The other employees were reportedly shaken up and Logan County Prosecuting Attorney John Bennett later suspended White. Bennett said “He said they had spiders everyplace and he said he told them it wasn’t funny, and he couldn’t stand them, and he did indeed get a gun out. It had no clip in it, of course they wouldn’t know that, I wouldn’t either if I looked at it, to tell you the truth.” It is not clear how White thought threatening the decorative spiders would keep them at bay or whether he was trying to deter those who sought to deck out the office in a Halloween theme. He was not charged by his colleagues with a crime but was suspended for his conduct. This is not our first interaction with White. He was the prosecutor in the controversial (and in my view groundless) prosecution of Jared Marcum, who was arrested after wearing a NRA tee shirt to school. *  *  * Another new case from the last year involves a murder. Donnie Cochenour Jr., 27, got a seasonal break (at least temporarily) on detecting his alleged murder of Rebecca J. Cade, 31. Cade’s body was left hanging on a fence and was mistaken by neighbors as a Halloween decoration. The “decoration” was found by a man walking his dog and reported by construction workers. A large rock was found with blood on it nearby. Donnie Cochenour Jr., 27, was later arrested and ordered held on $2 million bond after he pleaded not guilty to murder. Cade apparently had known Cochenour since he was a child — a relationship going back 20 years. Cochenour reportedly admitted that they had a physical altercation in the field. Police found a blood trail that indicates that Cade was running from Cochenour and tried to climb the fence in an attempt to get away. She was found hanging from her sleeve and is believed to have died on the fence from blunt force trauma to the head and neck. Her body exhibited “defensive wounds.” When police arrested Cochenour, they found blood on is clothing. *  *  * In 2015, federal and state governments were cracking down on cosmetic contact lenses to give people spooky eyes. Owners and operators of 10 Southern California businesses were criminally charged in federal court with illegally selling cosmetic contact lenses without prescriptions. Some of the products that were purchased in connection with this investigation were contaminated with dangerous pathogens that can cause eye injury, blindness and loss of the eye. The products are likely to result in a slew of product liability actions. *  *  * Another 2015 case reflects that the scariest part of shopping for Halloween costumes or decorations may be the trip to the Party Store. Shanisha L. Saulsberry sued U.S. Toy Company, Inc. after she was injured shopping for Halloween costumes and a store rack fell on her. The jury awarded Saulsberry $7,216.00 for economic damages. She appealed the damages after evidence of her injuries were kept out of the trial by the court. However, the Missouri appellate court affirmed the ruling. *  *  * The case of Castiglione v. James F. Q., 115 A.D.3d 696, shows a classic Halloween tort. The lawsuit alleged that, on Halloween 2007, the defendant’s son threw an egg which hit the plaintiff’s daughter in the eye, causing her injuries. The plaintiff also brought criminal charges against the defendant’s son arising from this incident and the defendant’s son pleaded guilty to assault in the third degree (Penal Law § 120.00 [2]). However, at his deposition, the defendant’s son denied throwing the egg which allegedly struck the plaintiff’s daughter. Because of the age of the accused, the case turned on the youthful offender statute (CPL art 720) that provides special measures for persons found to be youthful offenders which provides “Except where specifically required or permitted by statute or upon specific authorization of the court, all official records and papers, whether on file with the court, a police agency or the division of criminal justice services, relating to a case involving a youth who has been adjudicated a youthful offender, are confidential and may not be made available to any person or public or private agency [with certain exceptions not relevant here]” (CPL 720.35 [2]). This covers both the physical documents constituting the official record and the information contained within those documents. Thus, in relation to the Halloween egging, the boy was protected from having to disclose information or answer questions regarding the facts underlying the adjudication *  *  * We discussed the perils of pranks and “jump frights,” particularly with people who do not necessarily consent. In the case of Christian Faith Benge, there appears to have been consent in visiting a haunted house. The sophomore from New Miami High School in Ohio died from a prior medical condition at the at Land of Illusion haunted house. She was halfway through the house with about 100 friends and family members when she collapsed. She had an enlarged heart four times its normal size. She also was born with congenital diaphragmatic hernia, which prevents the lungs from developing normally. This added stress to the heart. In such a case, consent and comparative negligence issues effectively bar recovery in most cases. It is a terrible loss of a wonderful young lady. However, some fatalities do not always come with liability and this appears such a case. Source: Journal News *  *  * As discussed earlier, In Franklin County, Tennessee, children may want to avoid the house of Dale Bryant Farris, 65, this Halloween . . . or houses near him. Bryant was arrested after shooting a 15-year-old boy who was with kids toilet-papering their principal’s front yard. Bryant came out of his house a couple of houses down from the home of Principal Ken Bishop and allegedly fired at least two blasts — one hitting a 15-year-old boy in the right foot, inner left knee, right palm, right thigh and right side of his torso above the waistline. Tennessee is a Castle Doctrine state and we have seen past cases like the notorious Tom Horn case in Texas where homeowners claimed the right to shoot intruders on the property of their neighbors. It is not clear if Bryant will argue that he was trying to stop intruders under the law, but it does not appear a good fit with the purpose or language of the law. Farris faces a charge of aggravated assault and another of reckless endangerment. He could also face civil liability from the boy’s family. This would include assault and battery. There is a privilege of both self-defense and defense of others. This privilege included reasonable mistaken self-defense or defense of others. This would not fit such a claim since he effectively pursued the boys by going to a neighbor’s property and there was no appearance of a threat or weapon since they were only armed with toilet paper. The good news is that Farris can now discard the need for a costume. He can go as himself at Halloween . . . as soon as he is out of jail. *  *  * As shown below, Halloween nooses have a bad record at parties. In 2012, a club called Pink Punters had a decorative noose that it had used for a number of years that allowed party goers to take pictures as a hanging victim on Halloween. Of course, you guessed it. A 25-year old man was found hanging from the noose in an accidental self-lynching at the nightclub in England. The case would appear easy to defend in light of the assumption of the risk and patent danger. The noose did not actually tighten around necks. Moreover, this is England where tort claims can be more challenging. In the United States, however, there would remain the question of a foreseeable accident in light of the fact that patrons are drinking heavily and drugs are often present at nightclubs. Since patrons are known to put their heads in the noose, the combination is intoxication and a noose is not a particularly good mix. *  *  * Grant v. Grant. A potential criminal and tort case comes to us from Pennsylvania where, at a family Halloween bonfire, Janet Grant spotted a skunk and told her son Thomas Grant to fetch a shotgun and shoot it. When he returned, Janet Grant shined a flashlight on the animal while her son shot it. It was only then that they discovered that Thomas Grant had just shot his eight-year-old cousin in her black and white Halloween costume. What is amazing is that authorities say that they are considering possible animal gaming charges. Fortunately, the little girl survived with a wound to the shoulder and abdomen. The police in Beaver County have not brought charges and alcohol does not appear to have been a factor. Putting aside the family connection (which presumably makes the likelihood of a lawsuit unlikely), there is a basis for both battery and negligence in such a wounding. With children in the area, the discharge of the firearm would seem pretty unreasonable even with the effort to illuminate “the animal.” Moreover, this would have to have been a pretty large skunk to be the size of an eight-year-old child. Just for the record, the average weight of a standard spotted skunk in that area is a little over 1 pound. The biggest skunk is a hog-nosed skunk that can reach up to 18 pounds. *  *  * We also have a potential duel case out of Aiken, South Carolina from one year ago. A 10-year-old Aiken trick-or-treater pulled a gun on a woman who joked that she wanted take his candy on Halloween. Police found that his brother, also ten, had his own weapon. The 28-year-old woman said that she merely joked with a group of 10 or so kids that she wanted their candy when the ten-year-old pulled out a 9 mm handgun and said “no you’re not.” While the magazine was not in the gun, he had a fully loaded magazine in his possession. His brother had the second gun. Both appear to have belonged to their grandfather. The children were released to their parents and surprisingly there is no mention of charges against the grandfather. While the guns appear to have been taken without his permission, it shows great negligence in the handling and storage of the guns. What would be interesting is a torts lawsuit by the woman for assault against the grandfather. The actions of third parties often cut off liability as a matter of proximate causation, though courts have held that you can be liable for creating circumstances where crimes or intentional torts are foreseeable. For example, a landlord was held liable in for crimes committed in his building in Kline v. 1500 Massachusetts Avenue. Here the grandfather’s negligence led to the use of the guns by these children. While a lawsuit is unlikely, it would certainly be an interesting — and not unwarranted — claim. *  *  * Tauton High School District The Massachusetts case of Smith v. Taunton High School involves a Halloween prank gone bad. A teacher at Taunton High School asked a 15-year-old student to answer a knock on the classroom door. The boy was startled when he came face to face with a man in a mask and carrying what appeared to be a running chainsaw. The student fell back, tripped and fractured a kneecap. His family is now suing though the state cap on such lawsuits is $100,000. Dussault said the family is preparing a lawsuit, but is exploring ways to avoid a trial and do better than the $100,000 cap when suing city employees. This could make for an interesting case, but would be better for the Plaintiffs as a bench versus a jury trial. Many jurors are likely to view this as simply an attempt at good fun by the teacher and an unforeseeable accident. Source: CBS *  *  * In Florida, a woman has sued for defamation, harassment and emotional distress after her neighbor set up decorations that included an insane asylum sign that pointed to her yard and a fake tombstone with an inscription she viewed as a reference to her single status. It read, “At 48 she had no mate no date/ It’s no debate she looks 88.” This could be a wonderful example of an opinion defense to defamation. As for emotional distress, I think the cause of the distress pre-dates Halloween. *  *  * Pieczonka v. Great America (2012) A family is suing Great America for a tort in 2011 at Great Falls. Father Marian Pieczonka alleged in his complaint that his young daughter Natalie was at the park in Gurnee, Illinois for the Halloween-themed Fright Fest when a park employee dressed in costume jumped out of a port-a-potty and shot her with a squirt gun. He then reported chased the screaming girl until she fell and suffered injuries involving scrapes and bruises. The lawsuit alleges negligence in encouraging employees to chase patrons given the tripping hazards. They are asking $30,000 in the one count complaint but could face assumption or comparative negligence questions, particularly in knowingly attending an event called “Fright Fest” where employees were known to jump out at patrons. *  *  * A lawsuit appears inevitable after a tragic accident in St. Louis where a 17-year-old girl is in a critical condition after she became tangled in a noose at a Halloween haunted house called Creepyworld. The girl was working as an actress at the attraction and was found unconscious. What is particularly chilling is that people appeared to have walked by her hanging in the house and thought she was a realistic prop. Notably, the attraction had people walk through to check on the well-being of actors and she was discovered but not for some time after the accident. She is in critical condition. Creepyworld employs 100 people and can expect a negligence lawsuit. *  *  * Rabindranath v. Wallace (2010) Peter Wallace, 24, was returning on a train with fellow Hiberinian soccer fans in England — many dressed in costumes (which the English call “fancy dress.”) One man was dressed as a sheep and Wallace thought it was funny to constantly flick his lighter near the cotton balls covering his body — until he burst into flames. Friends then made the matter worse by trying to douse the flames but throwing alcohol on the flaming man-sheep. Even worse, the victim Arjuna Rabindranath, 24, is an Aberdeen soccer fan. Rabindranath’s costume was composed of a white tracksuit and cotton wool. Outcome: Wallace is the heir to a large farm estate and agreed to pay damages to the victim, who experienced extensive burns. What is fascinating is the causation issue. Here, Wallace clearly caused the initial injury which was then made worse by the world’s most dim-witted rescue attempt in the use of alcohol to douse a fire. In the United States, the original tortfeasor is liable for such injuries caused by negligent rescues. Indeed, he is liable for injured rescuers. The rescuers can also be sued in most states. However, many areas of Europe have good Samaritan laws protecting such rescuers. Notably, Wallace had a previous football-related conviction which was dealt with by a fine. In this latest case, he agreed to pay 25,000 in compensation. The case is obviously similar to one of our prior Halloween winners below: Ferlito v. Johnson & Johnson *  *  * Perper v. Forum Novelties (2010) Sherri Perper, 56, of Queens, New York has filed a personal injury lawsuit due to defective shoes allegedly acquired from Forum Novelties. The shoes were over-sized clown shoes that she was wearing as part of her Halloween costume in 2008. She tripped and fell. She is reportedly claiming that the shoes were dangerous. While “open and obvious” is no longer an absolute defense in such products cases, such arguments may still be made to counter claims of defective products. In most jurisdictions, you must show that the product is more dangerous than the expectations of the ordinary consumer. It is hard to see how Perper could be surprised that it is a bit difficult to walk in over-sized shoes. Then there is the problem of assumption of the risk. *  *  * Dickson v. Hustonville Haunted House and Greg Walker (2009) Glenda Dickson, 51, broke four vertebrae in her back when she fell out of a second story window left open at the Hustonville Haunted House, owned by Greg Walker. Dickson was in a room called “The Crying Lady in the Bed” when one of the actors came up behind the group and started screaming. Everyone jumped in fright and Dickson jumped back through an open window that was covered with a sheet — a remarkably negligent act by the haunted house operator. She landed on a fire escape and then fell down some stairs. *  *  * Maryland v. Janik (2009) Sgt. Eric Janik, 37, went to a haunted house called the House of Screams with friends and when confronted by a character dressed as Leatherface with a chainsaw (sans the chain, of course), Janik pulled out his service weapon and pointed it at the man, who immediately dropped character, dropped the chainsaw, and ran like a bat out of Halloween Hell. Outcome: Janik is charged with assault and reckless endangerment for his actions. Charges pending. *  *  * Patrick v. South Carolina (2009) Quentin Patrick, 22, an ex-convict in Sumter, South Carolina shot and killed a trick-or-treater T.J. Darrisaw who came to his home on Halloween — spraying nearly 30 rounds with an assault rifle from inside his home after hearing a knock on the door. T.J.’s 9-year- old brother, Ahmadre Darrisaw, and their father, Freddie Grinnell, were injured but were released after being treated at a hospital. Patrick left his porch light on — a general signal for kids that the house was open for trick and treating. The boy’s mother and toddler sibling were in the car. Patrick emptied the AK-47 — shooting at least 29 times through his front door, walls and windows after hearing the knock. He said that he had been previously robbed. That may be so, but it is unclear what an ex-con was doing with a gun, let alone an AK-47. OUTCOME: Charges pending for murder. *  *  * Kentucky v. Watkins (2008) As a Halloween prank, restaurant manager Joe Watkins of the Chicken Ranch in Paris, Kentucky thought it was funny to lie in a pool of blood on the floor. After seeing Watkins on the floor, the woman went screaming from the restaurant to report the murder. Watkins said that the prank was for another employee and that he tried to call the woman back on her cell phone. OUTCOME: Under Kentucky law, a person can be charged with a false police report, even if he is not the one who filed it. The police charged Watkins for causing the woman to file the report — a highly questionable charge. *  *  * Mays v. Gretna Athletic Boosters␣95-717 (La.App. 5 Cir. 01/17/96) “Defendant operated a haunted house at Mel Ott Playground in Gretna to raise money for athletic programs. The haunted house was constructed of 2×4s and black visqueen. There were numerous cubbyholes where “scary” exhibits were displayed. One booster club member was stationed at the entrance and one at the exit. Approximately eighteen people participated in the haunted house by working the exhibits inside. Near and along the entrance of the haunted house was a bathroom building constructed of cinder blocks. Black visqueen covered this wall. Plaintiff and her daughter’s friend, about 10 years old, entered the haunted house on October 29, 1988. It was nighttime and was dark inside. Plaintiff testified someone jumped out and hollered, scaring the child into running. Plaintiff was also frightened and began to run. She ran directly into the visqueen-covered cinder block wall. There was no lighting in that part of the haunted house. Plaintiff hit the wall face first and began bleeding profusely from her nose. She testified two surgeries were required to repair her nose.” OUTCOME: In order to get the proper effect, haunted houses are dark and contain scary and/or shocking exhibits. Patrons in a Halloween haunted house are expected to be surprised, startled and scared by the exhibits but the operator does not have a duty to guard against patrons reacting in bizarre, frightened and unpredictable ways. Operators are duty bound to protect patrons only from unreasonably dangerous conditions, not from every conceivable danger. As found by the Trial Court, defendant met this duty by constructing the haunted house with rooms of adequate size and providing adequate personnel and supervision for patrons entering the house. Defendant’s duty did not extend to protecting plaintiff from running in a dark room into a wall. Our review of the entire record herein does not reveal manifest error committed by the Trial Court or that the Trial Court’s decision was clearly wrong. Plaintiff has not shown the haunted house was unreasonably dangerous or that defendant’s actions were unreasonable. Thus, the Trial Court judgment must be affirmed. *  *  * Powell v. Jacor Communications␣ UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT 320 F.3d 599 (6th Cir.2003) “On October 15, 1999, Powell visited a Halloween season haunted house in Lexington, Kentucky that was owned and operated by Jacor. She was allegedly hit in the head with an unidentified object by a person she claims was dressed as a ghost. Powell was knocked unconscious and injured. She contends that she suffered a concussion and was put on bed rest and given medications by emergency-room physicians. Powell further claims that she now suffers from several neuropsychological disorders as a result of the incident.” OUTCOME: Reversed dismissal on the basis of tolling of statute of limitations. *  *  * Kansas City Light & Power Company v. Trimble␣ 315 Mo. 32; 285 S.W. 455 (1926) Excerpt: “A shapely pole to which, twenty-two feet from the ground is attached a non-insulated electric wire . . Upon a shapely pole were standard steps eighteen inches apart; about seventeen feet from the ground were telephone wires, and five feet above them was a non-insulated electric light wire. On Halloween, about nine o’clock, a bright fourteen-year-old boy and two companions met close to the pole, and some girls dressed as clowns came down the street. As they came near the boy, saying, “Who dares me to walk the wire?” began climbing the pole, using the steps, and ascended to the telephone cables, and thereupon his companions warned him about the live wire and told him to come down. He crawled upon the telephone cables to a distance of about ten feet from the pole, and when he reached that point a companion again warned him of the live wire over his head, and threatened to throw a rock at him and knock him off if he did not come down. Whereupon he turned about and crawled back to the pole, and there raised himself to a standing position, and then his foot slipped, and involuntarily he threw up his arm, his hand clutched the live wire, and he was shocked to death.” OUTCOME: Frankly, I am not sure why the pole was so “shapely” but the result was disappointing for the plaintiffs. Kansas City Light & Power Company v. Trimble: The court held that the appellate court extended the attractive nuisance doctrine beyond the court’s ruling decisions. The court held that appellate court’s opinion on the contributory negligence doctrine conflicted with the court’s ruling decisions. The court held that the administrator’s case should never have been submitted to the jury. The court quashed the appellate opinion. “To my mind it is inconceivable that a bright, intelligent boy, doing well in school, past fourteen years of age and living in the city, would not understand and appreciate the fact that it would be dangerous to come in contact with an electric wire, and that he was undertaking a dangerous feat in climbing up the pole; but even if it may be said that men might differ on that proposition, still in this case he was warned of the wire and of the danger on account of the wire and that, too, before he had reached a situation where there was any occasion or necessity of clutching the wire to avoid a fall. Not only was he twice warned but he was repeatedly told and urged to come down.” *  *  * Purtell v. Mason␣ 2006 U.S. Dist. LEXIS 49064 (E.D. Ill. 2006) “The Purtells filed the present lawsuit against Defendant Village of Bloomingdale Police Officer Bruce Mason after he requested that they remove certain Halloween tombstone “decorations” from their property. Evidence presented at trial revealed that the Purtells placed the tombstones referring to their neighbors in their front yard facing the street. The tombstones specifically referred to their neighbors, who saw the language on the tombstones. For instance, the tombstone that referred to the Purtells’ neighbor James Garbarz stated: Here Lies Jimmy, The OlDe Towne IdioT MeAn As sin even withouT his Gin No LonGer Does He wear That sTupiD Old Grin . . . Oh no, noT where they’ve sent Him! The tombstone referring to the Purtells’ neighbor Betty Garbarz read: BeTTe wAsN’T ReADy, BuT here she Lies Ever since that night she DieD. 12 feet Deep in this trench . . . Still wasn’T Deep enough For that wenches Stench! In addition, the Purtells placed a Halloween tombstone in their yard concerning their neighbor Diane Lesner stating: Dyean was Known for Lying So She was fried. Now underneath these daises is where she goes crazy!! Moreover, the jury heard testimony that Diane Lesner, James Garbarz, and Betty Garbarz were upset because their names appeared on the tombstones. Betty Garbarz testified that she was so upset by the language on the tombstones that she contacted the Village of Bloomingdale Police Department. She further testified that she never had any doubt that the “Bette” tombstone referred to her. After seeing the tombstones, she stated that she was ashamed and humiliated, but did not talk to Jeffrey Purtell about them because she was afraid of him. Defense counsel also presented evidence that the neighbors thought the language on the tombstones constituted threats and that they were alarmed and disturbed by their names being on the tombstones. James Garbarz testified that he interpreted the “Jimmy” tombstone as a threat and told the police that he felt threatened by the tombstone. He also testified that he had concerns about his safety and what Jeffrey Purtell might do to him.” OUTCOME: The court denied the homeowners’ post-trial motion for judgment as a matter of law pursuant to and motion for a new trial. Viewing the evidence and all reasonable inferences in a light most favorable to Officer Mason, a rational jury could conclude that the language on the tombstones constituted threats, that the neighbors were afraid of Jeffrey Purtell, and that they feared for their safety. As such the Court will not disturb the jury’s conclusion that the tombstones constituted fighting words — “those which by their very utterance inflict injury or tend to incite an immediate breach of the peace.” *  *  * Goodwin v. Walmart 2001 Ark. App. LEXIS 78 “On October 12, 1993, Randall Goodwin went to a Wal-Mart store located on 6th Street in Fayetteville, Arkansas. He entered through the front door and walked toward the sporting goods department. In route, he turned down an aisle known as the seasonal aisle. At that time, it was stocked with items for Halloween. This aisle could be observed from the cash registers. Mr. Goodwin took only a few steps down the aisle when he allegedly stepped on a wig and fell, landing on his right hip. As a result of the fall, Mr. Goodwin suffered severe physical injury to his back, including a ruptured disk. Kelly Evans, an employee for appellee, was standing at the end of her check-out stand when Mr. Goodwin approached her and informed her that he had fallen on an item in the seasonal aisle. She stated that she “saw what he was talking about.” OUTCOME: Judgment affirmed because the pleadings, depositions, and related summary judgment evidence did not show that there was any genuine issue of material fact as appellant customer did not establish a plastic bag containing the Halloween wig which allegedly caused him to slip and fall was on the floor as the result of appellee’s negligence or it had been on the floor for such a period of time that appellee knew or should have known about it. *  *  * Eversole v. Wasson␣ 80 Ill. App. 3d 94 (Ill. 1980) Excerpt: “The following allegations of count I, directed against defendant Wasson, were incorporated in count II against the school district: (1) plaintiff was a student at Villa Grove High School which was controlled and administered by the defendant school district, (2) defendant Wasson was employed by the school district as a teacher at the high school, (3) on November 1, 1978, at approximately 12:30 p.m., Wasson was at the high school in his regular capacity as a teacher and plaintiff was attending a regularly scheduled class, (4) Wasson sought and received permission from another teacher to take plaintiff from that teacher’s class and talk to him in the hallway, (5) once in the hallway, Wasson accused plaintiff of being one of several students he believed had smashed Wasson’s Halloween pumpkin at Wasson’s home, (6) without provocation from plaintiff, Wasson berated plaintiff, called him vile names, and threatened him with physical violence while shaking his fist in plaintiff’s face which placed plaintiff in fear of bodily injury, (7) Wasson then struck plaintiff about the head and face with both an open hand and a closed fist and shook and shoved him violently, (8) as a result, plaintiff was bruised about the head, neck, and shoulders; experienced pain and suffering in his head, body, and limbs; and became emotionally distraught causing his school performance and participation to be adversely affected . . .” OUTCOME: The court affirmed that portion of the lower court’s order that dismissed the count against the school district and reversed that portion of the lower court’s order that entered a judgment in bar of action as to this count. The court remanded the case to the lower court with directions to allow the student to replead his count against the school district. *  *  * Holman v. Illinois 47 Ill. Ct. Cl. 372 (1995) “The Claimant was attending a Halloween party at the Illinois State Museum with her grandson on October 26, 1990. The party had been advertised locally in the newspaper and through flier advertisements. The advertisement requested that children be accompanied by an adult, to come in costume and to bring a flashlight. The museum had set up different display rooms to hand out candy to the children and give the appearance of a “haunted house.” The Claimant entered the Discovery Room with her grandson. Under normal conditions the room is arranged with tables and low-seated benches for children to use in the museum’s regular displays. These tables and benches had been moved into the upper-right-hand corner of the Discovery Room next to the wall. In the middle of the room, there was a “slime pot” display where the children received the Halloween treat. The overhead fluorescent lights were turned off; however, the track lights on the left side of the room were turned on and dim. The track lights on the right side of the room near the tables and benches were not lit. The room was dark enough that the children’s flashlights could be clearly seen. There were approximately 40-50 people in the room at the time of the accident. The Claimant entered the room with her grandson. They proceeded in the direction of the pot in the middle of the room to see what was going in the pot. Her grandson then ran around the pot to the right corner toward the wall. As the Claimant followed, she tripped over the corner of a bench stored in that section of the room. She fell, making contact with the left corner of the bench. She experienced great pain in her upper left arm. The staff helped her to her feet. Her father was called and she went to the emergency room. Claimant has testified that she did not see the low-seating bench because it was so dimly lit in the Discovery Room. The Claimant was treated at the emergency room, where she was diagnosed with a fracture of the proximal humeral head of her left arm as a result of the fall. Claimant returned home, but was unable to work for 12 to 13 weeks.” OUTCOME: “The Claimant has met her burden of proof. She has shown by a preponderance of the evidence that the State acted negligently in placing furnishings in a dimly-lit room where visitors could not know of their location. The State did not exercise its duty of reasonable care. For the foregoing reasons, the Claimant is granted an award of $20,000.” *  *  * Ferlito v. Johnson & Johnson 771 F. Supp. 196 “Plaintiffs Susan and Frank Ferlito, husband and wife, attended a Halloween party in 1984 dressed as Mary (Mrs. Ferlito) and her little lamb (Mr. Ferlito). Mrs. Ferlito had constructed a lamb costume for her husband by gluing cotton batting manufactured by defendant Johnson & Johnson Products (“JJP”) to a suit of long underwear. She had also used defendant’s product to fashion a headpiece, complete with ears. The costume covered Mr. Ferlito from his head to his ankles, except for his face and hands, which were blackened with Halloween paint. At the party Mr. Ferlito attempted to light his cigarette by using a butane lighter. The flame passed close to his left arm, and the cotton batting on his left sleeve ignited. Plaintiffs sued defendant for injuries they suffered from burns which covered approximately one-third of Mr. Ferlito’s body.” OUTCOME: Ferlito v. Johnson & Johnson: Plaintiffs repeatedly stated in their response brief that plaintiff Susan Ferlito testified that “she would never again use cotton batting to make a costume.” Plaintiffs’ Answer to Defendant JJP’s Motion for J.N.O.V., pp. 1, 3, 4, 5. However, a review of the trial transcript reveals that plaintiff Susan Ferlito never testified that she would never again use cotton batting to make a costume. More importantly, the transcript contains no statement by plaintiff Susan Ferlito that a flammability warning on defendant JJP’s product would have dissuaded her from using the cotton batting to construct the costume in the first place. At oral argument counsel for plaintiffs conceded that there was no testimony during the trial that either plaintiff Susan Ferlito or her husband, plaintiff Frank J. Ferlito, would  have acted any different if there had been a flammability warning on the product’s package. The absence of such testimony is fatal to plaintiffs’ case; for without it, plaintiffs have failed to prove proximate cause, one of the essential elements of their negligence claim. In addition, both plaintiffs testified that they knew that cotton batting burns when it is exposed to flame. Susan Ferlito testified that she knew at the time she purchased the cotton batting that it would burn if exposed to an open flame. Frank Ferlito testified that he knew at the time he appeared at the Halloween party that cotton batting would burn if exposed to an open flame. His additional testimony that he would not have intentionally put a flame to the cotton batting shows that he recognized the risk of injury of which he claims JJP should have warned. Because both plaintiffs were already aware of the danger, a warning by JJP would have been superfluous. Therefore, a reasonable jury could not have found that JJP’s failure to provide a warning was a proximate cause of plaintiffs’ injuries. The evidence in this case clearly demonstrated that neither the use to which plaintiffs put JJP’s product nor the injuries arising from that use were foreseeable. But in Trivino v. Jamesway Corporation, the following result: The mother purchased cosmetic puffs and pajamas from the retailer. The mother glued the puffs onto the pajamas to create a costume for her child. While wearing the costume, the child leaned over the electric stove. The costume caught on fire, injuring the child. Plaintiffs brought a personal injury action against the retailer. The retailer filed a third party complaint against the manufacturer of the puffs, and the puff manufacturer filed a fourth party complaint against the manufacturer of the fibers used in the puffs. The retailer filed a motion for partial summary judgment as to plaintiffs’ cause of action for failure to warn. The trial court granted the motion and dismissed the actions against the manufacturers. On appeal, the court modified the judgment, holding that the mother’s use of the puffs was not unforeseeable as a matter of law and was a question for the jury. The court held that because the puffs were not made of cotton, as thought by the mother, there were fact issues as to the puffs’ flammability and defendants’ duty to warn. The court held that there was no prejudice to the retailer in permitting plaintiffs to amend their bill of particulars. OUTCOME: The court modified the trial court’s judgment to grant plaintiffs’ motion to amend their bill of particulars, deny the retailer’s motion for summary judgment, and reinstate the third party actions against the manufacturers. Tyler Durden Mon, 10/31/2022 - 19:05.....»»

Category: blogSource: zerohedgeOct 31st, 2022

Violent Crime Is Driving A Red Wave

Violent Crime Is Driving A Red Wave Authored by Charles Lipson via RealClear Wire, Two weeks before the 2022 midterms, fear of crime is second only to worries over inflation and recession. Both issues – personal security and economic security – affect voters directly. They arise every time voters ride the subway, walk down a dark street, pay the cashier at the grocery, or fill up their truck. That’s why survey after survey says they are the top issues motivating voters this November. That’s bad news for Democrats. Pollsters say Republicans hold huge advantages on the economy, inflation, and crime, the issues that matter most to voters. Since crime is essentially a local issue, why does it hurt Democrats running for national or statewide office? Because the Democratic Party has associated itself with the notion that “social justice” and “racial equality” require fundamentally changing policing and incarceration. The problem, they say, is police, not criminals. In practice, that means Democrats, especially progressives, favor weaker law enforcement, easier conditions for bail (even for those charged with violent offenses), and less funding for police officers. That message was encapsulated in the slogans “defund the police” and “reimagine policing,” which took hold in 2020 after George Floyd was killed by a Minneapolis cop. Not all Democrats embraced this self-defeating fad. Joe Biden, notably, spoke out against it. But progressives marched in lock-step, and their policies became the party’s dominant message on crime. Not just dominant, uncontested. Left-wing prosecutors ran on that message, won in city after city, and implemented it with disastrous effects. They had strong backing from state and local Democratic politicians. Pushback inside the party was tepid, for fear of alienating white progressives as well black leaders and activists. Now Democrats are stuck with the consequences on the streets and, soon, at the ballot box. The party’s “soft on crime” image has become a political albatross, which candidates cannot readily discard. They are weighed down for two reasons. First, they hold power nationally and in almost every major city, so voters hold them responsible for bad outcomes. The party’s unwillingness to enforce basic laws and protect the public is exemplified by the porous Southern border, a deliberate policy choice by the Biden administration. The result has been an unprecedented influx of illegal immigrants (some 2.4 million in the last fiscal year alone), plus a surge of deadly drugs. Mexican cartels have reaped billions in profits, five or six times as much as they made before Biden threw open the border. Second, when the movement to defund police was at its height, no prominent national Democrats were willing to push back forcefully. That means candidates today cannot appeal to the public on these issues. None chose to follow Bill Clinton’s path during the 1992 presidential campaign, when he denounced Sister Souljah’s openly racist statements. None, including Joe Biden, were willing to become the pro-law enforcement face of the party, to denounce widespread rioting during the summer of 2020, to urge a crackdown on arsonists, looters, muggers, carjackers, and killers. Far from it. When Democrats held their nominating convention in Milwaukee that summer, they remained silent about the violence. Biden chose as his running mate a California senator who personally urged her Twitter followers to send money to a Minnesota nonprofit that helped post bail for protestors accused of breaking the law. Voters get the point – and they don’t like it. They link the rise in crime to Democratic policies, to their unwillingness to make public safety a high priority, to their refusal to enforce the law. They don’t believe candidates who blame these problems mainly on bad policing or “systemic racism.” Voters do recognize the serious problems plaguing poor, minority communities and, for some six decades, have supported social-welfare programs to address them (with uneven results). But that doesn’t mean they accept crime, especially violent crime, whatever its social roots. Voters are saying they want more public safety, which means more policing, not less. They don’t think their position is racist because they want fair, unbiased treatment of blacks, whites, Hispanics, and Asians. They don’t want to ignore persistent poverty and crime in inner cities. They want effective programs to deal with them. But they do not believe, as progressives do, that these problems are somehow due mainly to “white supremacy.” On the contrary, voters have witnessed a steep, long-term decline in those noxious attitudes. On criminal justice issues, Americans see sharp differences between the two major political parties. They know Republicans have long favored more support for law enforcement, more funding, and more policies like “broken windows” policing, which seek to reduce crime by punishing minor offenses before the perpetrators succeed and move on to larger ones. They know Democrats have consistently opposed these policies and dismantled them in cities they govern. They can see the results for themselves. The Democrats’ message on crime is failing for another reason: They control the cities where crime is rampant. Voters around the country see the connection, and it hurts Democrats everywhere. The pain is compounded because the party has no good answers about what to do next, aside from more spending on social services and mental health (which are badly needed) and controlling guns (which faces formidable constitutional obstacles, as well as practical obstacles since millions of people already own millions of guns). Voters aren’t inventing their fear of crime. They see it daily on local news, followed by interviews with the victims’ anguished families. They see videos of local stores being ransacked by organized gangs – none ever arrested. They see it firsthand when they walk into Walgreens and have to ask a clerk to unlock the Plexiglas case to get a tube of toothpaste. They see it again when they walk on local streets, trying to avoid homeless camps, open-air drug markets, and discarded needles. National data tells a similar story. Violent crime, in particular, has reached record levels. The problems are not limited to big cities like Chicago or Philadelphia or progressive bastions like Seattle, Portland, and San Francisco. Small and mid-sized cities face the same problems, without the media spotlight. In 2022, the FBI’s Uniform Crime Reporting Program lists the ten most dangerous cities as Little Rock, Memphis, Tacoma, Detroit, Pueblo, Cleveland, Springfield, Lansing, Kansas City, and Chattanooga. Democrats govern all of them except Chattanooga, whose mayor does not list a party affiliation. Once again, voters have no trouble making the connection. The desire for better law enforcement became national news earlier this year when San Francisco voters recalled their uber-progressive prosecutor, Chesa Boudin. Savvy Democrats saw that as a warning. But by then, it was too late for many of them. They were locked into weak positions on crime. There wasn’t much they could do besides change the subject. Voters don’t want to change the subject. They want to change policies. They want much better public safety, fairly administered. They are sick of virtue signaling, wishful thinking, and criminals released to repeat their offenses. That’s what they are saying to pollsters. Soon, that’s what they will say at the ballot box. Tyler Durden Thu, 10/27/2022 - 20:40.....»»

Category: blogSource: zerohedgeOct 27th, 2022

Stockman: The Macroeconomic Consequences Of Lockdowns & The Aftermath

Stockman: The Macroeconomic Consequences Of Lockdowns & The Aftermath Authored by David Stockman via The Brownstone Institute, During the past three years, Washington has made three catastrophic errors. These include: The draconian one-size-fits-all Lockdowns in response to the Covid; The insane $11 trillion bacchanalia of monetary and fiscal stimulus payment designed to counter the supply-side shutdowns caused by the Virus Patrol; The mindless Sanctions War on Russia, which has caused global commodity markets to erupt skyward. The resulting economic and financial dislocations, both global and domestic, are unprecedented and could not have come in a worst context. Prolonged fiscal and monetary excesses prior to February 2020 were already destined to generate an era of reckoning, even before Washington jumped the shark after the Covid panic was ignited by Donald Trump in March 2020. Consider the course of fiscal and monetary policy over 2003-2019. During that 17-year period, the public debt share of GDP soared from an already high 62% to 111%, and the Fed’s balance sheet exploded under the bailouts of 2008-2009 and QE thereafter from $725 billion to $4.2 trillion. The latter embodied a growth rate of 11.0% per annum over the period, nearly three times the 4.0% growth rate of nominal GDP. In a word, Washington policy makers had been on a reckless lark for the better part of two decades. It was only a matter of time before an unavoidable policy reversal toward restraint would bring the hothouse prosperity of both Wall Street and main street crashing down. Public Debt As % of GDP and Fed Balance Sheet, 2003-2019 The history books will surely record, therefore, that it was Trump who foolishly ignited the above depicted ticking financial timebomb. Based on the facts known now and the evidence available then, the prolonged Lockdowns ordered by Trump on March 16, 2020 were one of the most capriciously destructive acts of the state in modern history. The reason is simple: The Covid was at best a super flu that did not remotely rise to a Black Plague style existential threat to American society, and therefore did not warrant any extraordinary “public health” intervention at all. America’s medical care system was more than equipped to handle the elevated case loads among the elderly and comorbid that actually occurred. Indeed, the IFR (infection fatality rate) for the under 70-years population has turned out to be so low as to make the brutal economic shutdowns ordered by the Donald and his Fauci-led Virus Patrol tantamount to crimes against the American people. A thorough-going study by Professor Ioannidis and colleagues across 31 national seroprevalence studies in the pre-vaccination era,  for example, shows that the median infection fatality rate of COVID-19 was estimated to be just 0.035% for people aged 0-59 years and 0.095% for those aged 0-69 years. So we are talking about just four-to ten-hundredths of one percent of the infected populations succumbing to the disease. A further breakdown by age group found that the average IFR was: 0.0003% at 0-19 years 0.003% at 20-29 years 0.011% at 30-39 years 0.035% at 40-49 years 0.129% at 50-59 years  0.501% at 60-69 years. There is just no beating around the bush. The Lockdowns impacted the livelihoods and social life primarily of the working age and youth populations depicted below, but not in a million years should the heavy hand of the state been brought to bear on their ordinary freedoms to conduct economic and social life as they saw fit. Nor does the Donald and Fauci’s Virus Patrol get off the hook on the grounds that these dispositive facts about the Covid were not fully known in early March 2020. But to the contrary, the results of a live fire case study involving the 3,711 passengers and crew members of the famously stricken and stranded cruise ship, the Diamond Princess, were fully known at the time, and they were more than enough to quash the Lockdown hysteria. During late January and February the virus had spread rapidly among the large, close-quartered population of the cruise ship, causing nearly 20% of the population to test positive—about half of which were symptomatic. Moreover, the population skewed elderly as is normally the case on cruise ships, with 2,165 people or 58% over 60-years of age and 1,242 or 33% over 70-years. So if there was a vulnerable population sample this was it: That is, a stranded population of the mostly elderly in the close quarters of a cruise ship. But, alas, the known mortality count from the Diamond Princess as of March 13, 2020 was just nine, and ultimately 13, meaning that the overall population survival rate was 99.8%. Moreover, all of these nine deaths were among the 70 years and older population, making the survival rate for even among the most vulnerable sub-population 99.3%,. And, of course, for the 2,469 persons under 70-years of age on this ship, the survival rate was, well, 100%.  That’s right. Donald Trump and his way-in-over-his-head son-in-law, Jared Kushner, knew or should have known that the survival rate of the under 70-years population on the Diamond Princess was 100%, and that there was no dire public emergency in any way, shape or form. Under those conditions, anyone with a passing familiarity with the tenets of constitutional liberty and the requisites of free markets would have sent Dr. Fauci, Dr. Birx and the rest of the public health power-grabbers packing. That the Donald and Jared did not do. Instead, they got led by the nose for month after month by Fauci’s awful crew because basically Trump and Kushner were power-seekers and egomaniacs, not Republicans and certainly not conservatives. The resulting unnecessary economic wreckage is almost unspeakable. Here are four measures which show that the instant plunge in economic activity triggered by the Lockdowns was simply off-the-charts compared to any prior history. During Q2 2020, for example, real GDP plunged by 35% at an annualized rate, leaving the declines during the prior 11 post-war recessions (gray columns) far in the dust. Annualized Change In Real GDP, 1947 to 2022 Likewise, the drop in Q2 employment was in a whole new zip code. During April 2020, the US economy shed 20.5 million payroll jobs—a figure that was 28X larger than the worst  job loss of the Great Recession in February 2009 (-747,000). Monthly Change In Nonfarm Payrolls, 1939-2022 Even industrial production (black line), which was not nearly as heavily impacted as the Leisure & Hospitality (L&H) and other services industries, dropped by 13%, or nearly 4X more than during the worst month of the Great Recession. At the same time, payrolls at ground zero of the Lockdowns— restaurants, bars, hotels and resorts (purple line)— plummeted by a staggering 46% during April 2020 or by 50X more than any prior monthly decline. Monthly Change In Industrial Production and Leisure & Hospitality Payrolls, 1950-2022 To call the above a “supply-side shock” is hardly an adequate description. Donald Trump literally decimated the production side of the US economy because he did not have the gumption, knowledge and policy principles necessary to blow off Fauci’s statist attack on America’s market economy. But what came thereafter was actually worse. The Donald did not care a wit about fiscal rectitude and the surging public debt that was already in place; and actually had demanded time and again even more egregious money-printing than the ship of fools in the Eccles Building were already foisting upon the American economy. So he loudly clambered on board as the panicked politicians on Capitol Hill and the money-printers at the Fed opened the stimulus sluice gates like never before. The resulting disaster is now coming home to roost, with Joe Biden being the available fall guy, and rightfully so–given the compounding damage being wrought by his truly idiotic proxy war against Russia and the related Sanctions War attack on the global trading and payments system. Still, at the end of the day the disaster now unfolding was ignited by the Donald from the combustible fiscal and monetary brew he inherited. And his current dominance of the GOP tells you all you need to know about what lies ahead. The once-upon-a- time “conservative party” in the economic governance of America has become about as useless for the task as teats on a boar. The Aftermath Needless to say, the 35% annualized plunge in real GDP during Q2 2020 was not caused by “aggregate demand” suddenly petering out. In fact, there was nothing about this unprecedented collapse in economic activity that was remotely related to the prevailing Keynesian demand-driven models. To the contrary, the Covid contraction was all about the supply side. The latter had been directly monkey-hammered not by reluctant consumers and spenders, but by the marauding Virus Patrol which was shutting down restaurants, bars, gyms, ball parks, movie theaters, malls and countless more via direct “command and control” orders of the state. To be sure, when you lay off 20.5 million workers in a single-month (April 2020), for instance, that does cause household purchasing power to diminish. But it was also a case of Say’s Law getting its due. Diminished supply was curtailing its own demand. Indeed, the derivative loss of “aggregate demand” in April 2020 and the months immediately thereafter was tracking the prior loss of production and income. Consequently, the Keynesian solution of replenishing the lost demand with government transfer payments, promised only to draw down existing inventories, pull in more imports from less supply-constrained economies abroad and eventually inflate the price of existing supplies–whether from inventories, domestic production or sources abroad. In fact, this is exactly what happened in a process of further drastic economic distortion compared to all prior history. In the case of retail inventories, stimmy-fueled “demand” literally sucked the inventory stocks dry. The ratio to sales plunged to an unheard of low of 1.09 months by May 2021. Retail Inventory-To-Sales Ratio, 1992-2021 Likewise, import volumes erupted like never before. Between the pre-Covid level of $203 billion per month in January 2020 goods imports have soared by 46% to $297 billion per month. That’s a $1.1 trillion annual rate of gain! China, South Korea, Vietnam and Mexico are undoubtedly grateful. But the only pump Washington’s massive stimmies primed was located mainly in foreign economies. Meanwhile, the US economy struggled all the way through this period because the  shutdown orders and fears generated by the Virus Patrol drastically constricted the supply side of the US economy. Keynesian demand had nothing to do with it! US Monthly Imports Of Goods, 2012-2021 In fact, the startling eruption of demand for durable goods leaves no doubt about how wrongheaded the giant stimmies actually were. Since money could not be readily spent on the normal slate of services, households went bananas spending their restaurant money savings and their multiple rounds of stimmies on goods that could be delivered to the front door by Amazon. By the time the stimmies peaked in April 2021, personal consumption expenditures for goods were up by a staggering 79% over prior year. The resulting aberration in the flow of economic activity is plain as day in the chart below. Y/Y Change In Personal Consumption Expenditures For Durable Goods, 2007-2021 At length, foreign supply chains buckled under the weight of artificial demand for goods stimulated by Washington and European policy-makers—a dislocation that was then compounded when their unhinged Sanctions War against Russia caused petroleum, wheat and other commodity prices to soar, as well. As best shown by the lead indicator of upstream PPI prices for intermediate processed goods, inflation was brewing in the supply pipeline as early as September 2020, when the annualized rate of change posted at 5.6%. By December 2020 that figure had risen to 17.0%, and then was off to the races: Wholesale prices for processed goods were rising  at a 43% annualized rate by March 2021. As it happened, the downstream CPI began to accelerate in March 2021, but by then the die was cast. Washington’s foolish attempt to massively stimulate “demand” in an economy that was being drastically curtailed on the supply side by its own public health orders and policies had already ignited the most powerful inflationary cycle in 40 years. Of course, in March 2021, at the peak in the brown line below, Washington was still in full-on stimulus mode. Joe Biden’s $2 trillion American Rescue Act was injecting another round of fiscal stimulus, even as the Fed persevered in buying $120 billion per month of government and GSE debt. Annualized Rate Of Change, PPI For Intermediate Processed Goods, September 2020 to May 2021 Here is the annualized rate of government transfer payments for the last two cycles—with the latter one, again, being off the charts by a country mile. During the Great Recession cycle, the maximum increase in the government transfer payment rate was +$640 billion and 36% between December 2007 and May 2008 (i.e. the Bush tax rebate stimulus of that month was actually bigger than Obama’s shovel ready stimulus in February 2009). By contrast, under the absolute frenzy of stimmies during the Covid cycle, government transfer payments increased from a run rate of $3.15 trillion per annum in February 2020 to $8.10 trillion by March 2021. That’s when the two Trump stimmies and the Biden add-on maxed out at $6 trillion in total spending. The math of it is staggering. The annualized rate of government transfer payments rose by $4.9 trillion during that period, representing an out-of-this-world gain of 156% in just 13 months! Is there any wonder that the American economy has been over-run with a “demand shock” of biblical proportion? Annualized Rate Of Government Transfer Payments,  November 2007 to March 2021 An eruption of government spending and borrowing of this staggering magnitude within a matter of months would have normally caused a giant squeeze in the bond pits, sending  bond yields soaring skyward. But that didn’t happen: The benchmark yield on the 10-year UST (purple line) actually fell from an already low 3.15% in October 2018 to an absurd 0.55% in July 2020, and remained at just 1.83% thru February 2022. There is no mystery as to why. During the same period, the Fed’s balance sheet (black line) erupted as never before, rising from $4.1 trillion to a peak of $8.9 trillion by February 2022. That is to say, the Eccles Building monetized a huge share of the stimmy spending, thereby drastically falsifying the entire market for government debt and all the private household and business debt that prices off from it. Is it any wonder, therefore, that the Virus Patrol was able to run roughshod over the private economy? Washington compensated one and all for the resulting harm and then some by unleashing a $6 trillion spending bacchanalia in less than 14 months, which was accomplished with barely a dissent from either party to the Washington duopoly because interest rates on government debt had plunged to an all-time low. In turn, that was enabled by the most reckless spurt of money printing and debt monetization in recorded history. Meanwhile, the stock market and related risk assets rose by 60% on average and by two times, three times, and ten times in some of the hottest “momo” sectors during the same period. America was simply drunk on spending without production, borrowing without saving and money-printing without limit. It all amounted to a phantasmagoria of financial excess like had never before even been imagined, let alone attempted. Fed Balance Sheet And Yield On 10-Year UST, October 2018 to February 2022 The real skunk on the woodpile, however, is that the rationalization for all of this fiscal and monetary excess —protecting households and businesses from the plunge of economic activity — was essentially bogus. The lost aggregate demand did not need to be replaced with stimulus and free stuff because there had been a prior and equal decline in aggregate production and income. The only “stimulus” needed to restore the economy’s status quo ante was to send the Virus Patrol packing. That is to say, the Fed’s balance sheet could have stayed at $4 trillion (better yet it could have been returned to the previous path of QT-based shrinkage), even as the fiscal equation could have been pushed toward balance after decades of reckless borrowing. To be sure, low-wage workers got hit the hardest because they worked in the services sectors slammed by the Virus Patrol, meaning there was an “equity” case for some kind of government help in these cases. But, alas, the help was already there in the form of the automatic shock absorbers that have been erected in the Welfare State over the last decades. We are referring to unemployment insurance, food stamps, ObamaCare, Medicaid and a medley of lesser means-tested programs. The emphasis here is on means-tested. The so-called Safety Net was fully in place, would have covered 90% of the Covid-Lockdown hardship automatically and therefore required no fiscal bailout legislation at all, to say nothing of the $6 trillion of spending orgies that actually transpired. The only thing missing was that fact that state unemployment programs generally exclude gig and part-time workers, the very modest segment of the labor force that got clobbered the hardest. But a year’s worth of support at $30,000 per worker (more than they make on average) for an estimated 5 million gig workers not covered by regular state UI programs would have cost $150 billion or just 2.5% of the tidal wave of Covid relief spending that actually occurred. In any event, the US economy was a financial timebomb fixing to explode in February 2022 when Joe Biden decided to save “Novorossiya” (New Russia) from the Russians, who had intervened to protect their kinsman from the devastating attacks being leveled on the Donbas by the anti-Russian government planted in Kiev by Washington during the February 2014 coup. The resulting Washington-inspired Sanction War on the largest commodity producer on planet earth was the tripwire for the calamity now underway. Washington’s three great errors have turned the world upside-down. An economy freighted down with $92 trillion of public and private debt was, is and will remain an accident waiting to happen. *  *  * Republished from David Stockman’s site. Tyler Durden Sun, 10/23/2022 - 13:30.....»»

Category: blogSource: zerohedgeOct 23rd, 2022

Dem Grip On Senate In Peril As GOP Pulling Ahead In Nevada Race

Dem Grip On Senate In Peril As GOP Pulling Ahead In Nevada Race For Republicans to take control of the U.S. Senate, they'll need to flip at least one seat currently held by Democrats. That's looking increasingly likely, as the Republican challenger in Nevada is pulling ahead of the incumbent Democrat in the latest polls.  The race pits one-term incumbent Democrat Catherine Cortez Masto against Republican Adam Laxalt; both are former Nevada attorneys general. According to a Rasmussen poll released on Friday, Laxalt leads Cortez Masto 48% to 43%. Unaffiliated voters back the Republican by an 18-point margin -- 48% to 30%. A CBS News/YouGov poll published on Thursday put Laxalt up 1%, and found Cortez Masto is backed by 57% of women while Laxalt is the choice of 56% of men. Latino support of the Democratic Party is fading across the nation, and Nevada is no exception: While Cortez Masto won the Latino vote by 29 points in 2016, she's only up 18 this year, according to CBS News/YouGov.  Sticking to the Republicans' 2022 playbook, the Laxalt campaign has centered on the economy, inflation, crime and immigration. In Nevada as elsewhere, those are the top issues of concern to voters. When asked which is the best party to address them, more voters say Republicans are.  Pocketbook issues carry more weight in Nevada, a state with a higher proportion of working-class voters -- many of whom were laid off in the wake of pandemic shutdowns favored by Democrats. Today, Nevada gas prices are among the highest of any state, averaging $5.11 a gallon, which is nearly 34% above the nationwide average.   In the wake of the Supreme Court's overturning of Roe v Wade, Democrats hoped the abortion issue would give Cortez Masto the edge she needed as one of their most vulnerable Senate incumbents. The problem is abortion is far from being a top concern of voters. Veteran Democratic strategist James Carville -- who coined the expression "it's the economy, stupid" during the 1992 Clinton presidential campaign -- takes a dim view of the party's emphasis on the issue.  “A lot of these consultants think if all we do is run abortion spots that will win for us. I don’t think so,” he told Associated Press. "It’s a good issue. But if you just sit there and they’re pummeling you on crime and pummeling you on the cost of living, you’ve got to be more aggressive than just yelling abortion every other word."  Laxalt has taken a light-handed approach to the abortion issue, calling legal abortion "settled law" in Nevada, while supporting a state referendum to impose restrictions after 13 weeks instead of the current 24 weeks. About 70% of Nevadans say abortion should be "mostly legal."  Yusette Solomon, who canvasses for Nevada's pro-Democrat Culinary Workers union, tells AP that voters he interacts with don't talk much about abortion. Rather, it's tough economic conditions: “It’s hard for everybody. It’s the supermarket. It’s gas. Inflation is something we need to deal with. Everyone’s feeling it.” Tyler Durden Sun, 10/23/2022 - 09:55.....»»

Category: blogSource: zerohedgeOct 23rd, 2022

Macleod: The Great Global Unwind Begins

Macleod: The Great Global Unwind Begins Authored by Alasdair Macleod via, There is a growing feeling in markets that a financial crisis of some sort is now on the cards. backslash Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking. This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify: It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come. Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe. Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment.  The Credit Suisse wake-up call In the last fortnight, it has become obvious that Credit Suisse, one of Switzerland’s two major banking institutions, faces a radical restructuring. That’s probably a polite way of saying the bank needs rescuing. In the hierarchy of Swiss banking, Credit Suisse used to be regarded as very conservative. The tables have now turned. Banks make bad decisions, and these can afflict any bank. Credit Suisse has perhaps been a little unfortunate, with the blow-up of Archegos, and Greensill Capital being very public errors. But surely the most egregious sin from a reputational point of view was a spying scandal, where the bank spied on its own employees. All the regulatory fines, universally regarded as a cost of business by bank executives, were weathered. But it was the spying scandal which forced the bank’s highly regarded CEO, Tidjane Thiam, to resign. We must wish Credit Suisse’s hapless employees well in a period of high uncertainty for them. But this bank, one of thirty global systemically important banks (G-SIBs) is not alone in its difficulties. The only G-SIBs whose share capitalisation is greater than their balance sheet equity are North American: the two major Canadian banks, Morgan Stanley, and JPMorgan. The full list is shown in Table 1 below, ranked by price to book in the second to last column. [The French Bank, Groupe BPCE’s shares are unlisted so omitted from the table] Before a sharp rally in the share price last week, Credit Suisse’s price to book stood at 24%, and Deutsche Bank’s stood at an equally lowly 23.5%. And as can be seen from the table, seventeen out of twenty-nine G-SIBs have price-to-book ratios of under 50%. Normally, the opportunity to buy shares at book value or less is seen by value investors as a strategy for identifying undervalued investments. But when a whole sector is afflicted this way, the message is different. In the market valuations for these banks, their share prices signal a significant risk of failure, which is particularly acute in the European and UK majors, and to a similar but lesser extent in the three Japanese G-SIBs. As a whole, G-SIBs have been valued in markets for the likelihood of systemic failure for some time. Despite what the markets have been signalling, these banks have survived, though as we have seen in the case of Deutsche Bank it has been a bumpy road for some. Regulations to improve balance sheet liquidity, mainly in the form of Basel 3, have been introduced in phases since the Lehman failure, and still price-to-book discounts have not recovered materially. These depressed market valuations have made it impossible for the weaker G-SIBs to consider increasing their Tier 1 equity bases because of the dilutive effect on existing shareholders. Seeming to believe that their shares are undervalued, some banks have even been buying in discounted shares, reducing their capital and increasing balance sheet leverage even more. There is little doubt that in a very low interest rate environment some bankers reckoned this was the right thing to do. But that has now changed. With interest rates now rising rapidly, over-leveraged balance sheets need to be urgently wound down to protect shareholders. And even bankers who have been so captured by the regulators that they regard their shareholders as a secondary priority will realise that their confrères in other banks will be selling down financial assets, liquidating financial collateral where possible, and withdrawing loan and overdraft facilities from non-financial businesses when they can.  It is all very well to complacently think that complying with Basel 3 liquidity provisions is a job well done. But if you ignore balance sheet leverage for your shareholders at a time of rising prices and therefore interest rates, they will almost certainly be wiped out. There can be no doubt that the change from an environment where price-to-book discounts are an irritation to bank executives to really mattering is bound up in a new, rising interest rate environment. Rising interest rates are also a sea-change for derivatives, and particularly for the banks exposed to them. Interest rates swaps, of which the Bank for International Settlements reckoned there were $8.8 trillion equivalent in June 2021, have been deployed by pension funds, insurance companies, hedge funds and banks lending fixed-rate mortgages. They are turning out to be a financial instrument of mass destruction. An interest rate swap is an arrangement between two counterparties who agree to exchange payments on a defined notional amount for a fixed time period. The notional amount is not exchanged, but interest rates on it are, one being at a predefined fixed rate such as a spread over a government bond yield with a maturity matching the duration of the swap agreement, while the other floats based on LIBOR or a similar yardstick. Swaps can be agreed for fixed terms of up to fifteen years. When the yield curve is positive, a pension fund, for example, can obtain a decent income uplift by taking the fixed interest leg and paying the floating rate. And because the deal is based on notional capital, which is never put up, swaps can be leveraged significantly. The other party will be active in wholesale money markets, securing a small spread over floating rate payments received from the pension fund. Both counterparties expect to benefit from the deal, because their calculations of the net present values of the cash flows, which involves a degree of judgement, will not be too dissimilar when the deal is agreed. The risk to the pension fund comes from rising bond yields. Despite the rise in bond yields, it still takes the fixed rate agreed at the outset, yet it is committed to paying a higher floating rate. In the UK, 3-month sterling LIBOR rose from 0.107% on 1 December 2021, to 3.94% yesterday. In a five-year swap, the fixed rate taken by the pension fund would be based on the 5-year gilt yield, which on 1 December last was 0.65%. With a spread of perhaps 0.25% over that, the pension fund would be taking 0.9% and paying 0.107%, for a turn of 0.793%. Today, the pension fund would still be taking 0.9%, but paying out 3.94%. With rising interest rates, even without leverage it is a disaster for the pension fund. But this is not the only trap they have fallen into. In the UK, pension fund exposure to repurchase agreements (repos) led to margin calls and a sudden liquidation of gilt collateral less a fortnight ago. A number of specialist firms offered liability driven investment schemes (LDIs), targeted at final salary pension schemes. Using repos, LDI schemes were able to use low funding rates to finance long gilt positions, geared by up to seven times. When LDIs blew up due to falling collateral values, the gilt market collapsed as pension funds became forced sellers, and the Bank of England dramatically reversed its stillborn quantitative tightening policy. That saga has further to run, and the problem is not restricted to UK pension funds, as we shall see. A fuller description of how these repo schemes blew up is described later in this article. The LDI episode is a warning of the consequences of a change in interest rate trends for derivatives in the widest sense. We should not forget that the evolution of derivatives has been in large measure due to the post-1980 trend of declining interest rates. With commodity, producer, and consumer prices now all rising fuelled by currency debasement, that trend has now come to an end. And with collateral values falling instead of rising, it is not just a case of dealers adjusting their outlook. There are bound to be more detonations in the $600 trillion OTC global derivatives market. Central to these derivatives are banks and shadow banks. Credit Suisse has been a market maker in credit default swaps, leveraged loans, and other derivative-based activities. The bank deals in a wide range of swaps, interest rate and foreign exchange options, forex forwards and futures.[i] The replacement values of its OTC derivatives are shown in the 2021 accounts at CHF125.6 billion, which reduces with netting agreements to CHF25.6 billion. Small beer, it might seem. But the notional amounts, being the principal amounts upon which these derivative replacement values are based are far, far larger. The leverage between replacement values and notional amounts means that the bank’s exposure to rising interest rates could rapidly drive it into insolvency. At this juncture, we cannot know if this is at the root of the bank’s troubles. And this article is not intended to be a criticism of Credit Suisse relative to its peers. The problems the bank faces are reflected in the entire G-SIB system with other banks having far larger derivative exposures. The point is that as a whole, participants in the derivatives market are unprepared for the conditions which led to its phenomenal growth at $600 trillion equivalent, which is now being reversed by a change in the primary trend for interest rates. Central bank balance sheets and bailing commercial banks In the event of commercial banking failures, it is generally expected that central banks will ensure depositors are protected, and that the financial system’s survival is guaranteed. But given the sheer size of derivative markets and the likely consequences of counterparty failures, it will be an enormous task requiring global cooperation and the abandonment of the bail-in procedures agreed by G20 member nations in the wake of the Lehman crisis. There will be no question but that failing banks must continue to trade with their bond holders’ funds remaining intact. If not, then all bank bonds are likely to collapse in value because in a bail-in bond holders will prefer the sanctity of deposits guaranteed by the state. And any attempt to limit deposit protection to smaller depositors would be disastrous. Because the Great Unwind is so sudden, it promises to become a far larger crisis than anything seen before. Unfortunately, due to quantitative easing the central banks themselves also have bond losses to contend with, wiping out the values of their balance sheet equity many times over. That a currency-issuing central bank has net liabilities on its balance sheet would not normally matter, because it can always expand credit to finance itself. But we are now envisaging central banks with substantial and growing net liabilities being required to guarantee entire commercial banking networks.  The burden of bail outs will undoubtedly lead to new rounds of currency debasement directly and indirectly, as vain attempts are made to support financial asset values and prevent an economic catastrophe. Accelerating currency debasement by the issuing authorities will almost certainly undermine public faith in fiat currencies, leading to their entire collapse, unless a way can be found to stabilise them. The euro system has specific problems In theory, recapitalising a central bank is a simple matter. The bank makes a loan to its shareholder, typically the government, which instead of a balancing deposit it books as equity in its liabilities. But when a central bank is not answerable to any government, that route cannot be taken. This is a problem for the ECB, whose shareholders are the national central banks of the member states. Unfortunately, they are also in need of recapitalisation. Table 2 below summarises the likely losses suffered this year so far on their bond holdings under the assumptions in the notes. Other than the four national central banks for which bond prices are unavailable, we can see that all NCBs and the ECB itself have been entrapped by rising bond yields. Even the mighty Bundesbank appears to have losses on its bonds forty-four times its shareholders’ capital since 1 January. Bearing in mind that the Eurozone’s consumer price index is now rising at about 10% and considerably higher in some member states, 5-year maturity government bond yields between 2% (Germany) and 4% (Italy) can be expected to rise considerably from here. No amount of mollification, that central banks can never go bust, will cover up this problem. Imagine the legislative hurdles. The Bundesbank, let’s say, presents a case to the Bundestag to pass enabling legislation to permit it to recapitalise itself and to subscribe to more capital in the ECB on the basis of its share of the ECB’s equity to restore it to solvency. One can imagine finance ministers being persuaded that there is no alternative to the proposal, but then it will be noticed that the Bundesbank is owed over €1.2 trillion through the TARGET2 system. Surely, it will almost certainly be argued, if those liabilities were paid to the Bundesbank, there would be no need for it to recapitalise itself. If only it were so simple. But clearly, it is not in the Bundesbank’s interest to involve ignorant politicians in monetary affairs. The public debate would risk spiralling out of control, with possibly fatal consequences for the entire euro system. So, what is happening with TARGET2? TARGET2 imbalances are deteriorating again… Figure 1 shows that TARGET2 imbalances are increasing again, notably for Germany’s Bundesbank, which is now owed a record €1,266,470 million, and Italy’s Banca Italia which owes €714,932 million. These are the figures for September, while all the others are for August and are yet to be updated. In theory, these imbalances should not exist because that was an objective behind TARGET2’s construction. And before the Lehman crisis, they were minimal as the chart shows. Since then, they have increased to a total of €1,844,815 million, with Germany owed the most, followed by Luxembourg, which in August was owed €337,315 billion. Partly, this is due to Frankfurt and Luxembourg being financial centres for international transactions through which both foreign and Eurozone investing institutions have been selling euro-denominated obligations issued by entities in Portugal, Italy, Greece, and Spain (the PIGS). The bank credit resulting from these transactions works through the system as follows: An Italian bond is sold through a German bank in Frankfurt. On delivering the bond, the seller has recorded in his favour a credit (deposit) at the German bank. Delivery to Milan against payment occurs with the settlement going through TARGET2, the settlement system through which cross-border settlements are made via the NCBs. Accordingly, the German bank records a matching credit (asset) with the Bundesbank.  The Bundesbank has a liability to the German bank. On the Bundesbank’s balance sheet, it generates a matching asset, reflecting the settlement due from the Banca d’Italia. The Banca d’Italia has a liability to the Bundesbank, and a matching asset to the Italian bank acting for the buyer of the Italian bond. The Italian bank has a liability to the Banca d’Italia, matching the debit on the bond buyer’s account, which is extinguishedby the buyer’s payment in settlement. As far as the international seller and the buyer through the Italian market are concerned, settlement has occurred. But the offsetting transfers between the Bundesbank and the Banca d’Italia have not taken place. There have been no settlements between them, and imbalances are the result.  The situation has been worsened by capital flight within the Eurozone, using dodgy collateral originating in the PIGS posted to the relevant national central bank by commercial banks, against cash credits made to commercial banks in the form of repurchase agreements (repos).  There are two reasons for these repo transactions. The first is simple capital flight within the Eurozone, where cash balances gained through repos are deployed to buy bonds and other assets lodged in Germany and Luxembourg. The payments will be in euros but are very likely to be for bonds and other investments not denominated in euros. The second is that in overseeing TARGET2, the ECB has ignored collateral standards as a means of subsidising the PIGS’ financial systems. With the PIGS economies on continuing life support, local bank regulators would be put in an awkward position if they had to decide whether bank loans are performing or non-performing. Because increasing quantities of these loans are undoubtedly non-performing, the solution has been to bundle them up as assets which can be used as collateral for repos through the central banks, so that they get lost in the TARGET2 system. If, say, the Banca d’Italia accepts the collateral it is no longer a concern for the local regulator. The true fragility of the PIGS economies is concealed in this way, the precariousness of commercial bank finances is hidden, and the ECB has achieved a political objective of protecting the PIGS’ economies from collapse. The recent increase in the imbalances, particularly between the Bundesbank and the Banca d’Italia are a warning that the system is breaking down. It was not an obvious problem when the long-term trend for interest rates was declining. But now that they are rising, the situation is radically different. The spread between Germany’s bond yields and those of Italy along with those of the other PIGS is increasingly being deemed by investors to be insufficient to compensate for the enhanced risks in a rising interest rate environment. The consequences could lead to a new crisis for the PIGS as their precarious state finances become undermined. Furthermore, capital flight out of Eurozone investments generally is confirmed by the collapse in the euro’s exchange rate against the US dollar. The Eurozone’s repo market From our analysis of the underlying causes of TARGET2 imbalances, we can see that repos play an important role. For the avoidance of doubt a repo is defined as a transaction agreed between parties to be reversed on pre-agreed terms at a future date. In exchange for posting collateral, a bank receives cash. The other party, in our discussion being a central bank, sees the same transaction as a reverse repo. It is a means of injecting fiat liquidity into the commercial banking system. Repos and reverse repos are not exclusively used between commercial banks and central banks, but they are also undertaken between banks and other financial institutions, sometimes through third parties, including automated trading systems. They can be leveraged to produce enhanced returns, and this is one of the ways in which liability driven investment (LDI) has been used by UK pension funds geared up to seven times. Presumably UK LDIs are an activity mirrored by their Eurozone equivalents, likely to be revealed as interest rates continue to rise. According to the last annual survey by the International Capital Market Association conducted in December 2021, at that time the size of the European repo market (including sterling, dollar, and other currencies conducted in European financial centres) stood at a record of €9,198 billion equivalent.[ii] This was based on responses from a sample of 57 institutions, including banks, so the true size of the market is somewhat larger. Measured by cash currency analysis, the euro share was 56.9% (€5,234bn). Obtaining euro cash through repos is cheap finance, as Figure 2 illustrates, which is of rates earlier this week. It allows European pension and insurance funds to finance geared bond positions through liability driven investment schemes. Which is fine, until the values of the bonds held as collateral fall, and cash calls are then made. This is what blew up the UK gilt market recently and are doing do so again this week as gilt prices fall. This is not a problem restricted to the UK and sterling markets. We can be sure that this situation is ringing alarm bells in the ECB’s headquarters in Frankfurt, as well as in all the major commercial banks around Europe. It has not been a concern so long as interest rates were not rising. Now that they are, with price inflation out of control there’s likely to be an increased reluctance on the part of the banks to novate repo agreements. There are a number of moving parts to this emerging crisis. We can summarise the calamity beginning to overwhelm the Eurozone and the euro system, as follows: Rising interest rates and bond yields are set to implode European repo markets. The LDI crisis which hit London will also afflict euro-denominated bond and repo markets — possibly even before the ink in this article has long dried. Collapsing repos in turn will lead to a failure of the TARGET2 system, because repos are the primary mechanism drivingTARGET2 imbalances. The spreads between German and highly indebted PIGS government bonds are bound to widen dramatically, causing a new funding crisis for ever more highly indebted PIGS on a scale far larger than seen in the past. Commercial banks in the Eurozone will be forced to liquidate their assets and collateral held against loans, including repos, as rapidly as possible. This will collapse Eurozone bond markets, as we saw with the UK gilt market earlier this month. Paper held in other currencies by Eurozone banks will be liquidated as well, spreading the crisis to other markets. The ECB and the euro system, which is already insolvent, is duty bound to intervene heavily to support bond markets and ensure the survival of the whole system. Panglossians might argue that the ECB has successfully managed financial crises in the past, and that to assume they will fail this time is unnecessarily alarmist. But the difference is in the trends for price inflation and interest rates. If the ECB is to have the slightest chance of succeeding in keeping the whole euro system and its allied commercial banking system afloat, it will be at the expense of the currency as it doubles down on suppressing interest rates.  The Bank of Japan is struggling to keep bond yields suppressed Along with the ECB, the Bank of Japan forced negative interest rates upon its financial system in an effort to maintain a targeted 2% inflation rate. And while other jurisdictions see CPI rising at 10% or more, Japan’s CPI is rising at only 3%. There are a number of identifiable reasons why this is so. But the overriding reason is that the Japanese consumer continues to place unshakeable faith in the yen. This means that in the face of higher prices, the average consumer withholds spending, increasing preferences for holding the currency. Even though the yen has fallen by 26% against the dollar, and dollar prices are rising at 8.5%, the growing preference for holding cash yen relative to consumer purchases in domestic markets holds. But this cannot go on for ever. While domestic market conditions remain stable, the US Fed’s more aggressive interest rate policy relative to the BOJ’s tells a different story for the yen on the foreign exchanges. The Bank of Japan first started quantitative easing over twenty years ago and has accumulated a mixture of government bonds (JGBs), corporate bonds, equities through ETFs, and property trusts. On 30 September, their accumulated total had a book value — as distinct from a market value — of over ¥594 trillion ($4.1 trillion). But at ¥545.5 trillion, the JGB element is 92% 0f the total. Since 31 December 2021, the yield on the 10-year JGB (by far the largest component) has risen from 0.17% to 0.25% today. On this basis, the bond portfolio held at that time has lost nearly ¥10 trillion, which compares with the bank’s capital of only ¥100 million. Therefore, the losses on the bond element alone are about 100,000 times greater that the bank’s slender equity. One can see why the BOJ has drawn a line in the sand against market reality. It insists that the 10-year JGB yield must be prevented from rising above 0.25%. Its neo-Keynesian case is that consumer inflation is subdued so the case for reducing stimulation to the economy is a marginal one. But the consequence is that the currency is collapsing. And only yesterday, the rate to the US dollar began to slide again. This is shown in Figure 3 — note that a rising number represents a weakening yen. Despite the mess that Japan’s Keynesian policies has created, it is difficult to see the BOJ changing course willingly. But the crisis for it will surely come if one or more of its three G-SIBs needs supporting. And it should be noted (See Table 1) that all three of them have balance sheet gearing measured by assets to shareholders equity of over twenty times, with Mizuho as much as 26 times, and they all have price to book ratios less than 50%. The Fed’s position The position of America’s Federal Reserve Board is starkly different from those of the other major central banks. True, it has substantial losses on its bond portfolio. In its Combined Quarterly Financial Report for June 30, 2022, the Fed disclosed the change in unrealised cumulative gains and losses on its Treasury securities and mortgage-backed securities of $847,797 million loss (versus June 30 2021, $185,640m loss).[iii] The Fed reports these assets in its balance sheet at amortised cost, so the losses are not immediately apparent. But on 30 June, the five-year note was yielding 2.7% and the ten-year 2.97%. Currently, they yield 4.16% and 3.95% respectively. Even without recalculating today’s market values, it is clear that the current deficit is now considerably more than a trillion dollars. And the Fed’s capital and reserves stand at only $46.274 billion, with portfolio losses exceding 25 times that figure. Other than losses from rising bond yields, instead of pushing liquidity into markets it is withdrawing it through reverse repos. In this case, the Fed is swapping some of the bonds on its balance sheet for cash on pre-agreed, temporary terms. Officially, this is part of the Fed’s management of overnight interest rates. But with the reverse repo facility standing at over $2 trillion, this is far from a marginal rate setting activity. It probably has more to do with Basel 3 regulations which penalise large bank deposits relative to smaller deposits, and a lack of balance sheet capacity at the large US banks. Repos, as opposed to reverse repos, still take place between individual banks and their institutional customers, but it is not obvious that they pose a systemic risk, though some large pension funds may have been using them for LDI transactions, similarly to the UK pension industry. While highly geared compared with in the past, US G-SIBs are not nearly as much exposed to a general credit downturn as the Europeans, Japanese, and the British. Contracting bank credit will hurt them, but other G-SIBs are bound to fail first, transmitting systemic risk through counterparty relationships. Nevertheless, markets do recognise some risk, with price-to-book ratios of less than 0.9 for Goldman Sachs, Bank of America, Wells Fargo, State Street, and BONY-Mellon. JPMorgan Chase, which is the Fed’s principal policy conduit into the commercial banking system, is barely rated above book value. Bank of England — bad policies but some smart operators In the headlights of an oncoming gilt market crash, the Bank of England acted promptly to avert a crisis centred on pension fund liability driven investment involving interest rate swaps. The workings of interest rate swaps have already been described, but repos also played a role. It might be helpful to explain briefly how repos are used in the LDI context. A pension fund goes to a shadow bank specialising in LDI schemes, with access to the repo market. In return for a deposit of say, 20% cash, the LDI scheme provider buys the full amount of medium and long-dated gilts to be held in the LDI scheme, using them as collateral backing for a repo to secure the funding for the other 80%. The repo can be for any duration from overnight to a year.  One year ago, when the Bank of England suppressed its bank rate at zero percent, one-month sterling LIBOR was close to 0.4% percent to borrow, while the yield on the 20-year gilt was 1.07%. Ignoring costs, a five-times leverage gave an interest rate turn of 0.63% X 5 = 3.15%, nearly three times the rate obtained by simply buying a 20-year gilt. Today, the yield differential has improved, leading to even higher net returns. But the problem is that the rise in yield for the 20-year gilt to 4.9% means that the price has fallen from a notional 100 par to 49.95. Since this is the collateral for the cash obtained through the repo, the pension fund faces margin calls amounting to roughly 2.5 times the original investment in the LDI scheme. And all the pension funds using LDI schemes faced calls at the same time, which crashed the gilt market. This is why the BOE had to act quickly to stabilise prices. Very sensibly, it has given pension funds and the LDI providers until this Friday to sort themselves out. Until then, the BOE stands prepared to buy any long-dated gilts until tomorrow (Friday, 14 October). It should remove the selling pressure from LDI-related liquidation entirely and orderly market conditions can then resume. This experience serves as an example of how rising bond yields can wreak havoc in repo markets, and with interest rate swaps as well. That being the case, problems are bound to arise in other currency derivative markets as bond yields continue to rise. Like the other major central banks, the BOE has seen a substantial deficit arise on its portfolio of gilts. But at the outset of QE, it got the Treasury to agree that as well as receiving the dividends and profits from gilts so acquired, it would also take any losses. All gilts bought under the QE programmes are held in a special purpose vehicle on the Bank’s balance sheet, guaranteed by the Treasury and therefore valued at cost. Conclusions In this article I have put to one side all the economic concerns of a downturn in the quantities of bank credit in circulation and focused on the financial consequences of a new long-term trend of rising interest rates. It should be coming clear that they threaten to undermine the entire fiat currency financial system. Credit Suisse’s public problems should be considered in this context. That they have not arisen before was due to the successful suppression of interest rates and bond yields, while the quantities of currency and bank credit have expanded substantially without apparent ill effects. Those ill effects are now impacting financial markets by undermining the purchasing power of all fiat currencies at an accelerating rate. From being completely in control of interest rates and fixed interest markets, central banks are now struggling in a losing battle to retain that control from the consequences of their earlier credit expansion. That enemy of every state, the market, has central banks on the run, uncertain as to whether their currencies should be protected (this is the Fed’s current decision and probably a dithering BOE) or a precarious financial system must be the priority (this is the ECB and BOJ’s current position). But one thing is clear: with CPI measures rising at a 10% clip, interest rates and bond yields will continue to rise until something breaks. So far, commercial banks are dumping financial assets to deleverage their balance sheets. The effects on listed securities are in plain sight. What is less appreciated, at least before LDI schemes threatened to collapse the UK’s gilt market, is that the $600 trillion OTC derivative market which grew on the back of a long-term trend of declining interest rates is now set to shrink as contracts go sour and banks refuse to novate them. That means that up to $600 trillion of notional credit is set to vanish, in what we might call the Great Unwind. This downturn in the cycle of bank credit boom and bust will prove difficult enough for the central banks to manage. But they themselves have balance sheet issues, which can only be resolved, one way or another, by the rapid expansion of base money. And that risks undermining all public credibility in fiat currencies. Tyler Durden Fri, 10/14/2022 - 19:40.....»»

Category: smallbizSource: nytOct 14th, 2022

A Federal Proposal Could Turn Gig Workers Into Employees. Here’s What That Means

The U.S. Department of Labor's proposal could affect benefits and protections for millions On Tuesday, the U.S. Department of Labor (DOL) announced a proposal that could drastically reframe the distinction between independent contractors and employees, potentially making it easier for millions of workers to receive federal labor protections they currently lack. America has long relied on contract labor in some industries such as construction and health care, but gig work has now become the standard for many other kinds of app-based companies such as Uber, Lyft, and Instacart. Although gig work opens up opportunities for flexible and profitable work, gig workers are in a more precarious position than employees because their work doesn’t guarantee them protections like minimum wage or overtime pay. [time-brightcove not-tgx=”true”] “Most employment and labor laws were written half a century to a century ago and they didn’t anticipate the rise of the gig economy, so I think the law is reacting to the changes in the labor market,” Mark Gough, a professor of labor and employment relations at Pennsylvania State University, tells TIME. The proposal would expand employment classification to include multiple new factors, including how permanent the position is, how integral the work is for the employer, and the skill levels it requires. The Biden administration’s proposal would, however, have to endure a wave of potential backlash from companies which rely heavily on gig workers. Here’s what to know: Who would be affected by Biden’s new proposal? Although it’s difficult to pinpoint exactly how many people make a living through freelance, contract or gig work—terms often used interchangeably— they’re involved in a range of industries, including the industrial, clerical, technology and health fields. According to the Bureau of Labor, about 10% of the workforce—more than 15 million people—consisted of some form of independent contractor in 2017. According to the Pew Research Center, 16% of Americans were earning money from online gig work in 2021 during the pandemic. Pew’s research noted that many gig workers worried about contracting COVID-19 through their work and that this prompted calls for better safety and labor protections. Critics say that gig workers numbers may be even higher. Gough explains that the defining feature of gig workers is that they set their own hours and that allows for “greater potential for higher wages.” But, gig workers may be more vulnerable to exploitation and harassment because they aren’t protected by labor laws in the same ways that workers who have employee status are. Their incomes may also be less stable. So often, Gough says, gig workers are held to the same standards as employees would be, but they end up with “very, very little to none of the profits.” Why do gig workers want more labor protections? Under the Fair Labor Standards Act of 1938, federal labor laws guarantee workers’ rights to fair, safe, and healthy working conditions. Some of the most notable laws cover minimum wage, overtime pay, protection against discrimination and unemployment insurance, but many of these protections don’t apply to gig workers. “Employers use [gig workers] in substantial part because the law has excluded them from the right to collective bargaining,” Michael Gold, a professor of labor and employment law at Cornell University, tells TIME. If the proposal delivers on its aim to loosen the standards that bar workers from qualifying for employee status, more gig workers could transition to employee status and be covered by federal labor protections. How have labor rights activists and businesses responded? Heeding pressure from labor activists, the proposal is the Biden administration’s second attempt to overturn Trump-era policies favored by many business groups. If the measure is approved, “It’s not to say that every single independent contractor is going to have an easier time being classified as an employee, but I think some workers who are now considered independent contractors will have a stronger argument for employee classification,” Gough says. Labor rights activists, particularly groups that banded together to support app-based workers at places like Uber, Doordash and TaskRabbit, have criticized Biden’s lack of effort to protect gig workers since he took office. Despite its support from these groups, the DOL said that the proposal isn’t designed to target any specific industries. “It’s intended to provide an analysis that would apply to all industries, whether it’s newer or older, to different business models,” Seema Nanda, the U.S. Solicitor of Labor said at a press conference. Businesses reliant on gig workers have opposed similar initiatives in the past, however, saying that they’d face soaring operating costs. “This gets to the core of their business model,” Gough says. In the hours following the proposal, Uber and Lyft’s shares fell by as much as 10%. The DOL estimates that the proposal will cost groups with misclassified workers $188.3 million. “I’m sure that the employer community will protest the rule,” Gold says. “There’s more flexibility with a contract worker who is an at-will employee and generally, the pay is lower for a contract worker than for a permanent worker.” What’s the future of this proposal? Gold says that for gig workers who hope to see changes from the proposal unfold soon, “don’t hold your breath.” He explains that first, the proposal will take weeks or more likely months to get off the ground and then it may be subject to litigation from its opposition for years. “If the rule is announced, it will probably be challenged in court, and judicial proceedings on a rule could take a couple of years, easily,” Gold says. The proposal is also somewhat limited in scope, because it would only apply to employment policies that the Labor Department enforces, such as federal minimum wage. Other federal agencies, like the Internal Revenue Service, as well as state governments, create their own standards for classifying employment status, so the proposal won’t affect those decisions. Still, Gough predicts that other federal agencies and states will eventually adjust their own standards to align with those in the proposal. “It will, in time, have an indirect effect on changing the way judges, different legislators and administrative bodies interpret employment status, and what workers’ rights are,” he says. Gough specifies that the transition to protecting workers in a gig economy is going to take a lot more, and that “it’s important to recognize this is just a step towards reassessing the relationship between gig workers and the companies.”.....»»

Category: topSource: timeOct 12th, 2022

Futures Crater As Fedex Ushers In The Global Recession On $3.2 Trillion Triple Witch Day

Futures Crater As Fedex Ushers In The Global Recession On $3.2 Trillion Triple Witch Day Another day, another selloff, this time one driven by a catastrophic repricing by Fedex, which has plunged by the most ever this morning, down 20% and losing over $11BN in market cap... ... after pulling guidance and effectively warning that the entire world - and especially China - is in a recession. The fact that it is a $3.2 trillion opex today which guarantees even more volatility in the coming weeks... ... or that buyback blackout period begins today probably isn't helping, and sure enough, we end the week in a mirror image to how we started it, with equities extending declines with an index of global stocks on track for the worst week since June, while the dollar continued its relentless ascent, trading back to all time highs. S&P futures were down 0.8% at 730am, dropping to the lowest level in 2 months, while Nasdaq 100 lost more than 1%, as Europe  headed for a fourth day of losses, and Asian was a sea of red led by China. In premarket trading, besides the implosion in Fedex, Uber shares slid 5.3% in US premarket trading after the ride-hailing company said it has shut down internal Slack messaging as it investigates a cybersecurity breach. Bank stocks are also lower alongside S&P 500 futures, while the US 10-year Treasury yield advances. In corporate news, Credit Suisse’s securitized products group has drawn interest from Apollo Global Management and BNP Paribas, according to people with knowledge of the matter. Here are some other big premarket movers: FedEx (FDX US) shares plunged 20% in US premarket trading after the package delivery giant pulled its fiscal 2023 earnings forecast, triggering a raft of downgrades from analysts, including at KeyBanc and JPMorgan. Amazon (AMZN US) and UPS (UPS US) also fell. Adobe (ADBE US) shares fall another 2.3% in premarket trading, one day after its market value shrunk by $29.5 billion on an announcement to buy software design startup Figma. More analysts slashed ratings and price targets. Cryptocurrency- exposed stocks are likely to be active on Friday with Bitcoin dropping below $19,800 after SEC Chair Gary Gensler signaled that a feature of the network’s software could lead to tokens being considered securities by the commission. In the US premarket trading hours, Marathon Digital (MARA US) -3.2%, Coinbase (COIN US) -2.0%, Riot Blockchain (RIOT US) -3.4% Watch Alcoa (AA US) as Morgan Stanley upgrades the stock and several peers, noting that value begins to show within Americas metals and mining shares, but cautioning that uncertainty remains. International Paper (IP US) slides 5.6% in US premarket trading after Jefferies downgraded the stock as well as shares in Packaging Corp of America (PKG US) to underperform in reflection of the “massive inventory glut in containerboard.” The broker stays at hold for Westrock (WRK US), noting that valuation is already depressed. Policy-sensitive two-year Treasury yields extended a rise to the highest since 2007, deepening the curve inversion that’s seen as a recession signal. The latest US economic data painted a mixed picture for the economy that backed the view for hawkish monetary policy. Swaps traders are pricing in a 75 basis-point hike when the Federal Reserve meets next week, with some wagers appearing for a full-point move. “Everything points to another 75 basis-point rate hike by the Fed when it meets next week. The likelihood that it will have to go ‘big’ again in November is elevated, too,” said Raphael Olszyna-Marzys, an economist at Bank J Safra Sarasin. “What’s more, its new projections should indicate that the fight against inflation will be more painful than previously acknowledged.” Market participants will face additional volatility on Friday from the quarterly expiry event known as triple witching, with contracts for stock index futures, stock index options and stock options all expiring, while re-balancing of major equity indexes also takes place. In Europe, the Stoxx 50 slumped 1.4%, headed for a 4th day of losses. The FTSE 100 is flat but outperforms peers, DAX lags, dropping 1.7%. Industrials, construction and autos are the worst-performing sectors as are mining stocks which as iron ore slid amid concerns over demand in China, while aluminum fell on the back of record Chinese output.  European mail and parcel delivery companies took a hit in the aftermath of the Fedex warning, led by Deutsche Post AG, down as much as 7.6%. The UK’s benchmark outperformed as the British pound sank to its weakest level against the dollar since 1985. All industry groups are in the red. Here are the biggest European movers: Jupiter Fund Management jumps as much as 4.2% after being upgraded to neutral at UBS. Separately, the FT reported that the new CEO will restructure the company after an operational review Krones rises as much as 1.6% on Friday, with Baader Helvea saying the company showed “huge confidence” during recent capital markets day at the Drinktec trade fair in Munich Ariston shares soar as much as 11%, the most intraday since March 14, after the company agreed to buy 100% of Centrotec Climate Systems for EU703m in cash and ~41.42m Ariston shares Capita shares rise as much as 9.3% amid a contract extension with Barnet Council and the sale of subsidiary Pay360 for GBP150 million to Access PaySuite UK and EU real estate shares slip after both Goldman Sachs and JPMorgan published bearish reviews of the sector. Land Securities falls as much as 5.1% in London after being cut to sell at Goldman European mail and parcel delivery companies take a hit, led by Deutsche Post, down to July 2020 lows, after US peer FedEx withdrew its earnings forecast on worsening business conditions Mining stocks are among the biggest underperformers in Europe on Friday as iron ore slid amid concerns over demand in China, while aluminum fell on the back of record Chinese output Telecom Italia shares drop to a record low after Barclays cut the carrier to underweight from equal-weight, citing a more complex investment case amid political uncertainties in Italy Uniper plunges to its lowest level on record, with shares down as much as 16%, after people familiar with the matter said Germany is in advanced talks to take it over Virbac falls as much as 10% after the French veterinary-products company reported 1H results that showed inflation is weighing on profit margins Earlier in the session, Asian stocks headed for a fifth-straight weekly decline as markets remained volatile ahead of the Federal Reserve’s interest-rate decision next week, with the Xi-Putin meeting adding renewed geopolitical concerns. Stocks slumped in Japan, Hong Kong and mainland China, with little impact on sentiment from Chinese industrial-production and retail-sales data that beat expectations. The MSCI Asia Pacific Index fell as much as 1.3% on Friday, following weakness in US shares, led by technology and consumer discretionary stocks. China’s CSI 300 Index slumped the most in more than four months as the yuan weakened past 7 per dollar, offsetting upbeat August economic data, with the government ramping up stimulus to counter a slowdown.  Russia’s President Vladimir Putin met with Chinese leader Xi Jinping for the first time since the war in Ukraine began, underscoring increasing risks as Beijing continues to show support for Moscow. The Covid-Zero policy in China, a property crisis and the outcome of a US audit inspection will “keep the market in a relatively volatile state,” Laura Wang, chief China equity strategist at Morgan Stanley, said in a Bloomberg TV interview. The brokerage expects earnings growth for mainland companies “to decline to around mid-single digit” from Covid resurgence and lockdowns. India and Australia were among the region’s worst performers. Losses accelerated in afternoon trading as the dollar strengthened. Asian equities suffered a tumultuous week, falling more than 2% as risk assets took a hit from faster-than-expected US inflation, which fueled expectations for more aggressive monetary tightening by the Fed. A strong dollar and higher Treasury yields added to the headwinds. The regional stock benchmark is edging toward its lowest close since May 2020. Japanese stocks declined as concerns of a potential global economic slowdown and higher US interest rates damped demand for risk.  The Topix fell 0.6% to 1,938.56 as of the market close in Tokyo, while the Nikkei 225 declined 1.1% to 27,567.65. Keyence Corp. contributed the most to the Topix’s loss, decreasing 3.8%. Out of 2,169 stocks in the index, 589 rose and 1,501 fell, while 79 were unchanged. “The US interest rate hike will probably be 0.75 point, but there is still a strong sense of uncertainty about future hikes,” said Takeru Ogihara, a chief strategist at Asset Management One.  Summers Expects Fed to Raise Rates Above 4.3% to Curb Inflation The index for developing-nation equities fell to its lowest level in more than two years on Friday. A three-day slide has shaved $422 billion off MSCI’s EM stock index. The gauge fell as much as 1.5%, led by health care stocks. The EM equity gauge is down 5.5% this quarter, on track for a fifth consecutive drop, a record since Bloomberg began monitoring the data. In FX, the Bloomberg Dollar Spot Index rose as the greenback strengthened against all of its Group-of-10 peers apart from the yen which is marginally up, trading at the 143/USD level. Pound at 1.13/USD, the lowest since 1985, underperforming G-10 peers. The euro fell a first day in three, trading once again below parity against the dollar. Bunds, Italian bonds slid, putting their 10-year yields on course to climb for a seventh week as traders continued to amp up ECB tightening bets, pricing as much as 200bps of rate hikes by July.  The euro volatility skew shifts higher this week and especially on longer tenors, suggesting that bearish sentiment wanes. This seems to be down to demand for topside strikes and not unwinding of shorts given move in the tails The pound was the worst G-10 performer and fell below $1.14 for the first time since 1985. UK retail sales fell at the sharpest pace in eight months in August as a worsening cost-of-living crisis and plunging confidence forced consumers to cut back on spending. The 1.6% drop was more than three times the decline predicted by economists. Monday is a national bank holiday in the UK The Australian dollar tumbled to the lowest level since the early days of the Covid pandemic as risk aversion swept across markets. Three-year yield touched as high as 3.44% after National Bank of Australia raised its forecast to a 50bps hike in October. Reserve Bank of Australia Governor Philip Lowe said a few hikes would be needed to tame inflation, though the case for outsized interest-rate increases has “diminished” now that the cash rate is approaching “more normal settings” Japan’s longer-maturity bonds extended declines after Thursday’s weak 20-year auction. Japanese markets will be shut Monday and Friday next week for national holidays Meanwhile, the offshore yuan remained on the weaker side of 7 to the dollar, even as the People’s Bank of China set the reference rate for the currency stronger-than-forecast for a 17th straight day. “While China activity showed some improvement this morning, equity investors really want to see substantial easing in China’s policies related to Covid to turn a bit more constructive,” said Chetan Seth, Asia-Pacific equity strategist at Nomura Holdings Inc. in Singapore. “That has not happened.” In rates, the 10Y Treasury yield up 3bps to around 3.47%, gilts 10-year yield is flat at 3.16%, while bunds 10-year is also up 0.2bps at 1.79%. Treasuries remained lower after a bund-led selloff during European morning, with losses led by front-end of the curve as 2-year yields exceed Thursday’s highs, peaking near 3.92%. Further out, 5s30s breached Thursday’s low (reaching -21.1bp) to reach most inverted level since 2000. Yields are cheaper by more than 3bp across front-end of the curve with 2s10s spread flatter by ~2bp on the day; 10-year yields around 3.47%, trading broadly in line with bunds while gilts outperform by 2.5bp in the sector. US curve flattening persists as Fed rate expectations continue to grind higher; OIS markets price in a peak policy rate of around 4.5% for March 2023 In commodities, WTI and Brent are oscillating around the unchanged mark with the complex initially under pressure from the overall risk aversion. Kazakhstan energy ministry expects to stick to its oil production plans of 85.5mln tonnes this year; says Kashagan oilfield will resume output "in October at best." Spot gold is flat after the yellow metal took out the 2021 low (USD 1,676/oz) yesterday with clean air seen below until the COVID low of USD 1,450/oz. Bitcoin is flat around USD 19,750 whilst Ethereum remains pressured under USD 1,500. To the day ahead now, and data releases from the US include the University of Michigan’s preliminary consumer sentiment index for September, as well as UK retail sales for August. Meanwhile from central banks, we’ll hear from ECB’s President Lagarde, as well as the ECB’s Rehn and Villeroy. Market Snapshot S&P 500 futures down 1.0% to 3,863.75 STOXX Europe 600 down 1.2% to 409.92 MXAP down 1.3% to 150.15 MXAPJ down 1.6% to 490.96 Nikkei down 1.1% to 27,567.65 Topix down 0.6% to 1,938.56 Hang Seng Index down 0.9% to 18,761.69 Shanghai Composite down 2.3% to 3,126.40 Sensex down 1.8% to 58,881.76 Australia S&P/ASX 200 down 1.5% to 6,739.08 Kospi down 0.8% to 2,382.78 German 10Y yield little changed at 1.78% Euro down 0.4% to $0.9961 Gold spot down 0.5% to $1,656.63 U.S. Dollar Index up 0.34% to 110.11 Top Overnight News from Bloomberg A surging dollar is now the only possible hedge for what’s turning into the biggest destruction of shareholder value since the global financial crisis “The growing risk of recession in the euro area and the steadily increasing labor participation rate might also be factors that have kept wages in check,” European Central Bank Governing Council member Olli Rehn said in Helsinki “The slowdown of the economy is not going to ‘take care’ of inflation on its own,” European Central Bank Vice President Luis de Guindos tells Expresso newspaper in an interview. “We need to continue the normalization of monetary policy” The French inflation rate will peak between now and the beginning of next year near the current level, “around 6% or a little more,” Bank of France Governor Francois Villeroy de Galhau said A shortage of high-quality assets in the euro area is keeping a lid on short- term borrowing costs, a development that could endanger the ECB’s effort to tighten financial conditions Global equity funds saw inflows driven by US stocks in the week to Sept. 14, according to a Bank of America note, citing EPFR Global data China has ample monetary policy room and abundant policy tools, PBOC’s monetary policy department writes in an article that reviews the country’s monetary policies in the past five years China’s economy showed signs of recovery in August. Industrial production, retail sales and fixed-asset investment all grew faster than economists expected last month. The urban jobless rate slid to 5.3%, while the youth unemployment rate fell from a record high Japan’s increasingly incongruous policy stance aimed at securing both stable growth and inflation is adding to the likelihood of further yen losses, even as officials warn of possible intervention India’s sovereign bonds are defying a worldwide rout, as banks and foreign funds rushed to buy the high-yielding debt in anticipation that they will be included in global indexes Germany is taking control of Russian oil major Rosneft PJSC’s German oil refineries and is nearing a decision to take over Uniper SE and two other large gas importers as it tries to avoid a collapse of its energy industry A more detailed look at global markets courtesy of Newsquawk Asia stocks fell despite better-than-expected Chinese activity data as the region took its cue from the losses in the US after mixed data and as markets continued to adjust to a more aggressive Fed rate path. ASX 200 was pressured as energy and miners led the broad retreat after recent losses in commodity prices. Nikkei 225 suffered from the downbeat mood and with the 10yr JGB yield stuck at the top of the BoJ’s target. Hang Seng and Shanghai Comp conformed to the risk aversion with the latest Industrial Production and Retail Sales data failing to spur risk appetite despite both surpassing estimates. Top Asian News Chinese NBS said China is to coordinate economic development and COVID control, while it added that the economy continued a recovery trend in August and some factors exceeded expectations but also noted that the recovery in domestic demand still lags behind the recovery in production and that the property market faces downward pressure despite some positive changes. China's stats bureau also commented that the economy was affected by COVID flare-ups in August but the flare-ups impact was limited and that policies to stabilise growth are gaining traction although noted that China's economy faces more difficulties this year than in 2020. Chinese President Xi says China's economy remains resilient and full of potential Japanese Finance Minister Suzuki reiterated it is important for FX to move stably reflecting economic fundamentals and that sharp FX moves are undesirable, while he is concerned about sharp, one-sided JPY weakening and they will take necessary action without ruling out any options if sharp yen moves persist. Japan is to use JPY 3.5tln in reserve funds for economic measures, according to Kyodo News RBA Governor Lowe said the RBA is committed to returning inflation to the 2-3% target range over time and is seeking to do this in a way that keeps the economy on an even keel, while the Board expects further increases will be required to bring inflation back to target but they are not on a pre-set path. Lowe stated that with inflation as high as it is, they need to make sure that inflation returns to target in a reasonable time and will do what is necessary to make sure that higher inflation does not become entrenched. Furthermore, Lowe said at some point will not need to hike by 50bps and they are getting closer to that point, while they will consider hiking by 25bps or 50bps at the next meeting but also stated that rates are still too low right now. South Korean President Yoon and US President Biden are expected to discuss currency swap during a summit, according to Yonhap. South Korean Parliament Speaker Kim says need to promptly advance South Korean and Chinese trade negotiations Euro-bourses see the deepest losses whilst the FTSE 100 is cushioned by the slide in the Pound. European sectors are all lower and portray a clear defensive bias, with Healthcare at the top of the bunch. Stateside, US equity futures have been trundling lower with the NQ underperforming vs the ES, YM and RTY. Top European News No Movies. No McDonald’s. Britain Shuts for Queen’s Funeral WHO Panel Advises Against GSK, Regeneron Drugs for Covid AstraZeneca Gets Nod From EU for Evusheld and Respiratory Drug Telecom Italia Falls to Record Low Amid Barclays Downgrade Uniper Plunges to Lowest Level Ever on Nationalization Reports Cold War Relic Threatens Plans to Ditch Russian Oil FX GBP extended losses in wake of significantly weaker than forecast ONS retail sales data, with Cable sliding to the lowest level since 1985. DXY reclaimed 110.00-status as Sterling continued sliding, and now oscillates around the round figure. JPY stands as the outperformer, as USD/JPY hold within yesterday’s extremes amid the risk aversion and recent verbal jawboning. Chinese FX regulator says it is hard to predict short-term volatility in exchange rate, and urges companies not to bet on the exchange rate, according to state media South Korean Authorities are reportedly suspected of "smoothing operations" in USD/KRW trading, according to Reuters citing South Korean FX dealers. Fixed Income Bunds have staved off pressure on 142.00 within a 142.15-143.04 range. Gilts traded above par briefly between 104.93-105.50 extremes (+17 ticks at one stage). 10yr T-note is almost flat ahead of preliminary Michigan sentiment which will be watched closely for inflation expectations. Commodities WTI and Brent are oscillating around the unchanged mark with the complex initially under pressure from the overall risk aversion. Kazakhstan energy ministry expects to stick to its oil production plans of 85.5mln tonnes this year; says Kashagan oilfield will resume output "in October at best" Spot gold is flat after the yellow metal took out the 2021 low (USD 1,676/oz) yesterday with clean air seen below until the COVID low of USD 1,450/oz. Base metals meanwhile are softer across the board as the Dollar remains firm, but LME nickel bucks the trend with reports via Bloomberg also suggesting LME is being sued by hedge funds, including AQR, in the London High Court US Event Calendar 10:00: Sept. U. of Mich. Sentiment, est. 60.0, prior 58.2 10:00: Sept. U. of Mich. Current Conditions, est. 59.4, prior 58.6 10:00: Sept. U. of Mich. Expectations, est. 59.0, prior 58.0 10:00: Sept. U. of Mich. 1 Yr Inflation, est. 4.6%, prior 4.8% 10:00: Sept. U. of Mich. 5-10 Yr Inflation, est. 2.8%, prior 2.9% 16:00: July Total Net TIC Flows, prior $22.1b 16:00: July Net Foreign Security Purchases, prior $121.8b DB's Jim Reid concludes the overnight wrap Two weeks after coping with a manic birthday party for two manic 5 year old twins, we repeat the whole thing this weekend as my daughter Maisie turns 7 today and has a OTT Harry Potter themed party tomorrow at our house. I have a costume which I'm hoping will be cooler than the 10ft giant inflatable diplodocus outfit I had for the twins’ party. If you don’t believe me photos are available. Many people have kindly asked how Maisie is after being diagnosed with a rare hip disease called Perthes over 12 months ago. The answer is she is coping well but still needs to be in a wheelchair until the doctors see any sign that the hip ball is regrowing. We’re crossing our fingers that there might be signs at the next scan in December. At the moment it’s still slowly disintegrating. She’s had great news this week as she’s got accepted at a very young age into a prestigious artistic swimming club. Because of her regular rehab in the pool, and a natural talent even before her condition became apparent, she is phenomenal in the water. She is a stage 7 swimmer which on average is for around 10/11 year olds and used to love gymnastics before her incapacitation. So for a sport that I’ve perhaps always previously seen as one of my least favourite, I’m now a synchronised swimming convert ahead of her first session this Sunday. I suspect I'll stick to golf for myself though and won't be buying the nose peg. It was another synchronised sell off for both bonds and equities yesterday as investors moved to price in yet more rate hikes from central banks, raising market fears about a hard landing ahead. Those moves were prompted by a decent batch of US employment data, which added to the sense that the Fed could afford to keep hiking rates for the time being. But the prospect of more aggressive rate hikes proved bad news for equities, with the S&P 500 (-1.13%), its lowest level since July, more than reversing the previous day’s partial rebound that followed its worst daily performance for two years on Tuesday. In the meantime, sovereign bonds embarked on a further selloff and multiple recessionary indicators were flashing with increasing alarm, including the 2s30s Treasury yield curve that by the close was more inverted than at any time since 2000. Before we get onto the details however, we should point out that DB’s US economists, led by Matt Luzzetti, have also revised their expectations for the Fed funds rate following the latest inflation data, and now see the terminal rate some way beyond market pricing at 4.9% in Q1 2023 (link here). Matt has been consistently the highest on the street for economists in recent months and this upgrade is now closer to the 5-6% range that David Folkerts-Landau, Peter Hooper and I said was necessary to tame inflation in our “What’s in the tails?” note (link here) back in April. Today’s UoM inflation expectations series is going to be the last important release before next week’s FOMC, especially after this week’s messy CPI data. Year-ahead inflation expectations have been edging down of late but the upside surprise in June a few hours after a blockbuster CPI beat cemented the last minute 75bps hike. With +80.5bps priced in next week, it will be interesting to see if the expectations data move pricing any closer to 75 or 100bps, and if not, whether the Fed tries to influence pricing with a leak so the meeting isn't as “live”, or if they feel comfortable heading into the meeting with some split probability priced. While we're on the revision path, a reminder that our 10yr Bund forecast was upgraded to 2.25% late on Wednesday. See here for more. Against this rates higher backdrop, markets were revising their expectations in a hawkish direction following strong labour market data. In particular, the US weekly initial jobless claims for the week ending September 10 fell for a 5th consecutive week to 213k (vs. 227k expected), and the previous week was also revised down by -4k. The release added to the sense that the recent economic resilience over the late summer was proving to be more than just one data point, and it’s worth noting that the 213k reading was the lowest since May. Piling on, retail sales MoM increased 0.3% versus -0.1% expectations. As with most things macro related lately, there is a flipside, however. The core retail sales figure fell -0.3% versus expectations it would be flat, while the control group, which has outsize influence in GDP consumption tabulations, was flat MoM, versus expectations of a 0.5% expansion. Indeed, the Atlanta Fed’s GDPNow tracker downgraded 3Q GDP estimates to 0.5% from 1.3% following the print. Recession talk will only bubble up with more with revisions like that. But overall a messy set of data yesterday. The recent inflation surprises has proven bad news for risk assets since it’s seen as giving the Fed the green light for faster rate hikes. In response, the terminal rate priced in for March 2023 rose +7.8bps yesterday to 4.46%, and that in turn led to another selloff for Treasuries. By the close, the 2yr yield was up +7.7bps to its highest level since the GFC, whilst the 10yr yield rose +4.5bps to 3.45%. In Asia the 2yr yield is up another couple of bps, with 10yr yields flat, further inverting the 2s10s curve to -44.5 bps as we go to press. Higher real yields were behind the latest moves, with the 10yr real yield crossing 1.0%, hitting a post-2018 high. And in Europe it was much the same story, with yields on 10yr bunds (+5.3bps), OATs (+3.6bps) and BTPs (+5.7bps) all moving higher as well. Yesterday’s losses were spread across multiple asset classes, and equities took a tumble given those fears about faster rate hikes. The S&P 500 shed -1.13% as part of a broad-based decline, and the impact of higher interest rates was evident from the sectoral breakdowns, as tech stocks including the NASDAQ (-1.43%) struggled, whereas the banks in the S&P 500 advanced +1.54%. Europe experienced a similar pattern, with the STOXX 600 (-0.56%) losing ground for a third day running, in contrast to the STOXX Banks index (+1.98%) which hit a three-month high. One more positive piece of news on the inflation side was that a deal was reached to avert an upcoming US rail strike, which would have had a significant impact on supply chains had that gone ahead. A sign of its potential impact was that even the White House was involved, with President Biden joining the meeting virtually on Wednesday evening. The news helped a number of key commodities to fall back in price, including US natural gas futures which ended the day -8.67% lower, whilst WTI oil was also down -3.82% at $85.10/bbl. Asian equity markets are weaker again this morning, heading for a fifth consecutive weekly drop amid further weakness in US equities overnight. As I type, the CSI (-1.13%) and the Shanghai Composite (-0.97%) are trading in negative territory with stronger than expected economic data failing to boost risk sentiment. Elsewhere, the Nikkei (-1.08%), Kospi (-1.03%) and the Hang Seng (-0.55%) are also sliding. Looking ahead, stock futures in the DM world are pointing to additional losses with contracts on the S&P 500 (-0.71%), NASDAQ 100 (-0.88%) and DAX (-0.70%) all moving lower. We have early morning data from China with retail sales standing out as it jumped +5.4% y/y in August (v/s +3.3% expected), up from +2.7% in July. The uptick in retail sales was primarily visible in the restaurant/catering sectors, an industry typically sensitive to lockdowns. Other activity series showed that industrial production grew +4.2% y/y in August, which is an improvement from July’s +3.8% increase. Also, fixed asset investment for the first eight months of the year rose by +5.8%, above the +5.5% increase forecast. However, there were some disappointing signs elsewhere as new home prices slid for the 12th consecutive month, falling -0.29% m/m in August against a -0.11% decline previously, indicating that the recently rolled-out measures failed to revive demand. Staying on China, the People’s Bank of China (PBOC) continued its currency defense after the yuan weakened past the key level of 7 per US dollar for the first time in two years amid the relentless dollar rally. The central bank for the 17th straight day intervened while fixing the yuan 456 pips stronger than the average Bloomberg estimate to help prevent the currency’s slide. Back to wrapping up the rest of yesterday’s data, US industrial production was down -0.2% in August (vs. unch expected), and the Philadelphia Fed’s business outlook for September fell to -9.9 (vs. 2.3 expected). However, the Empire State manufacturing survey for September rose to -1.5 (vs. -12.9 expected), rebounding from its worst month since the Covid pandemic. To the day ahead now, and data releases from the US include the University of Michigan’s preliminary consumer sentiment index for September, as well as UK retail sales for August. Meanwhile from central banks, we’ll hear from ECB’s President Lagarde, as well as the ECB’s Rehn and Villeroy. Tyler Durden Fri, 09/16/2022 - 08:03.....»»

Category: blogSource: zerohedgeSep 16th, 2022

A World On Fire

A World On Fire Authored by Jeffrey Tucker via The Brownstone Institute, Every day, news reporters, traders, and workers of all sorts the world over wake to do their work as they always have. Part of that requires that everyone pretend that life is normal, fixable, and more or less stable. All of this is temporary. It will come and go and really not be that bad.  Strange, isn’t it? Human beings have a hard time adjusting to disaster, in their decision-making and even in their mindset. Reporters have to do their jobs as they are trained. Traders too. Everyone does. They please their bosses. They don’t sound alarms. They don’t scream and yell as they probably should.  But there is a moment in the day when the work is done and perhaps a cocktail comes out or the dishes are washed and the kids are in bed and the room falls silent. At this moment, millions and billions of people the world over know it. Disaster is all around us. We are just pretending otherwise, simply because this is what we have to do.  It was this way during lockdowns. They must know what they are doing otherwise why would we be forced to do this. If we all do our part, maybe this will end sooner rather than later. The experts surely know better than we do what is what. What can we do but trust? Let us adjust and find a way to normalize all of this in our minds. We are powerless to change it in any case.  And thus the peoples of the world adjusted and will continue to do so as the fundamentals decay and rot, long past the end of lockdowns and most vaccine mandates, even as all the old rituals and signals of life as we once knew it fade further into memory.  Enough with the dreary existentialism. Let’s talk about life in a one-bedroom apartment in London. The price of energy for heat has nearly doubled, seemingly overnight. Truly, it took months but it has felt like one day to the next. The energy bills will be approaching a substantial portion of the rent itself. And the forecast — which one has to do because that’s how energy markets work on the consumer end — is showing a doubling and doubling again.  Here is what Goldman Sachs is seeing.  Small businesses cannot function under these conditions. “Tom Kerridge, the celebrity chef, revealed that the annual energy bill at his pub has soared from £60,000 to £420,000 and warned that ‘ludicrous’ price rises left the hospitality sector facing a ‘terrifying landscape’,” reports Telegraph.  This is all running wildly ahead of consumer prices generally. This is only through June. We are already approaching 100% inflation in energy.  Many will need to close up shop. The new Prime Minister Liz Truss, who calls herself a conservative, has capped price increases for consumers while pushing the largest spending bill to bail out energy companies ever. It truly seems like she had no choice. Yes, that’s what they all say, but in this case, it might be true simply because otherwise, the entire nation would totally fall apart.  It could happen anyway.  “The U.K. may be facing a wave of business bankruptcies exceeding anything witnessed during the post-2008 panic and recession,” reports Joseph Sternberg. “Some 100,000 firms could be forced into insolvency in coming months, bankruptcy consultancy Red Flag Alert warned this week. These are otherwise healthy firms with at least £1 million in annual revenue. Business failures on this scale would dwarf the roughly 65,000 firms of any size that went under from 2008-10.” Everyone wants to know why. As always, there are a number of factors. The sanctions on Russia for its struggle over the borders of Ukraine were ill-advised. That has never stopped the deployment of such tactics: sanctions against Cuba still in force began 60 years ago, all in an effort to make some foreign state behave in a way that the US demands.  They have driven up the price of energy all over Europe and the UK. But even then, Russian sources only about 3% of the UK’s energy needs.  Another culprit is the fanatical attempt on the part of the government to convert a fossil-fuel economy to one powered by the wind and sun. For reasons of climate change, we know how good politicians are at controlling the global climate by taking away your consumer conveniences.  But really even these two factors would not be enough to cause this level of carnage. The real root of the problem is monetary, which in turn traces (again!) to lockdown policies: the wild currency debasement starting March 2020 and continuing through lockdowns has wrecked the place. How could they not see this coming? It’s ridiculous.  And it happened the world over. The chart below that I put together looks messy but it tells the whole story of how one generation of central bankers wrecked the world. The key on the left tells you monetary inflation rates and the key on the right tells you price inflation rates. One lags the other by 16-18 months. I’ve color-coded it so that you can see the relationships.  This covers the U.S. (green), the EU (red), and the UK (blue). You can see the massive oceans of paper being pumped out to cover up for the egregious evil of lockdowns. Do you remember those days when governments the world over imagined that they could somehow shut things down while keeping the data looking pretty with the printing press?  How Quickly Things Fall Apart  My friends in the UK are truly panicked. They want to come to the U.S. just to get away. But many of my friends are rebels and did not accept the vaccine because they are healthy and under the age of 80. They rejected the jab. Now they cannot come to the U.S. because the U.S. is still imposing rules that forbid travelers from foreign countries who are not vaccinated from getting across the borders.  These policies again trace to the lockdown era: March 12, 2020, in particular, when the office of the president decided on its own to do the unthinkable and shut travel from Europe, UK, Australia, and New Zealand. It caused family disruption, business loss, and tragedy all around. It is still not normalized, which makes the point: no one in Washington has any regrets.  This is the essence of policy in America today. Truly people are being locked out of our country for being insufficiently loyal to Pfizer, which seems to be the real government here at home, at least as it pertains to public health.  The most striking feature of that which afflicts the UK today is the sheer speed of it all. One day life was normal and then suddenly the bills were through the roof. No one could explain why. It was some kind of mystery, and extremely disorienting.  Why energy, for example? Well, inflation strikes in strange ways. It gravitates to the thing most vulnerable to price hikes. This could be dictated by fashion or policy or both. But when it happens, no power can stop it.  The story of going from normal to double and triple prices, forecasting to go much higher, reminds me of books I’ve read about Weimar, how things were fine until suddenly they were not and life itself took a shocking turn.  Until recently, Americans have looked at the chaos abroad and thought oh that’s what these weird foreign people do, just strange stuff with unstable governments and unsound financial systems. And yet right now it is happening to our mirror country across the pond, a place that Americans think of as cousins with a Royal family.  The remarkable thing is that the UK’s monetary policy was not as bad as the U.S.’s own. The only difference is that there is a larger international market for dollars than for pounds. This allows the Fed a bit of breaking room to do more damage.  But can it happen here? Yes, certainly, and it could happen before year’s end. The policies of the last three years have created an incredible powder keg. No one knows when it will go off, and no one knows what to do when it happens.  There are so many other data points: missing workers, food shortages, political instability, and the breathtaking entrenchment of Xi-backed lockdowns in China.  The world is on fire. Most people are not willing to think about it or talk about it. Yet.  Tyler Durden Mon, 09/12/2022 - 17:00.....»»

Category: dealsSource: nytSep 12th, 2022

Inflation Is State-Sponsored Terrorism

Inflation Is State-Sponsored Terrorism Via, Americans have been laboring under the burden of inflation for well over a year. We feel the pain everywhere, from the gas pump to the grocery store. Once it became impossible to sell the “inflation is transitory” narrative any longer, the Federal Reserve began raising interest rates to fight inflation. As a result, the bubble economy is getting shaky. But even some people at the Fed seem to realize this is a fight they can’t win. In a talk at the Ron Paul Institute, Mises Institute president Jeff Deist called inflation “state-sponsored terrorism.” Inflationism is both a fiscal and monetary regime, but its consequences go far beyond economics. It has profound social, moral, and even civilizational effects. And understanding how it terrorizes us is the task today.” Following is a transcript of Deist’s talk. The following article was originally published by the Mises Wire. The opinions expressed are the author’s and don’t necessarily reflect those of Peter Schiff or SchiffGold. I. Introduction Remember the quaint old days of 2019? We were told the US economy was in great shape. Inflation was low, jobs were plentiful, GDP was growing. And frankly, if covid had not come along, there is a pretty good chance Donald Trump would have been reelected. At an event in 2019, my friend and economist Dr. Bob Murphy said something very interesting about the political schism in this country. He said: If you think America is divided now, what would things look like if the economy was terrible? If we had another crash like 2008? Well, we might not have to imagine such a scenario much longer. If you think Americans are divided today, and at each other’s throats—metaphorically, but more and more literally—imagine if they were cold and hungry! Imagine if we had to live through something like Weimer Germany, Argentina in the 1980s, Zimbabwe in the 2000s, or Venezuela and Turkey today? What would our political and social divisions look like then? Ladies and gentlemen, we live under the tyranny of inflationism. It terrorizes us, either softly or loudly. I suspect it will get a lot louder soon. As the late Bill Peterson explained, “Inflationism, in today’s terms, is deficit-spending, deliberate credit expansion on a national scale, a public policy fallacy of monumental proportions, of creating too much money that chases too few goods. It rests on the ‘money illusion,’ a widespread confusion between in­come as a flow of money and income as a flow of goods and services—a confusion between ‘money’ and wealth.” Inflationism is both a fiscal and monetary regime, but its consequences go far beyond economics. It has profound social, moral, and even civilizational effects. And understanding how it terrorizes us is the task today. II. Understanding Inflationism I’ll ask you to consider three things. First, inflation is a policy. We should make them own it. Inflation is not something beyond our control that comes along periodically like the weather. Our monetary and fiscal regimes actually set out to create it and consider it a good thing. Let’s not forget—both Trump and Biden signed off on covid stimulus bills which combined injected roughly $7 TRILLION dollars directly into the economy—even as actual goods and services were dramatically reduced due to lockdowns. Deflation was the natural order of things in response to a crisis, a bullshit crisis in my view, but still a crisis. So of course Uncle Sam actively attempted to undo the natural desire to spend less and hold more cash during a time of uncertainty. This $7 trillion was created on the fiscal side of things. It was not new Fed bank reserves exchanged for commercial bank assets as a roundabout monetization of Treasury debt, as we saw with quantitative easing. This was direct stimulus from the Treasury via Congress as express fiscal policy. Free money. This money went straight into the accounts of individuals (stimulus checks), state and local governments, millions of small businesses (PPP [Paycheck Protection Program] loans), the airline industry, and untold earmarks. This was actual cash, and it is being spent. So any economist who tells you today’s inflation is somehow a surprise is either charitably misinformed or gaslighting. This is a policy. Inflation is engineered. The difference between supposedly desirable 2 percent CPI [Consumer Price Index] and very bad, awful, no good 9 percent CPI is only one of degree. The same mindset produces both. But the inflationists insist a little bit of virus is good for us, like a vaccine … So an express policy of some inflation is the mechanism to forestall too much inflation. This is a curious position. Second, inflation is nothing less than sanctioned state terror, and we ought to treat it as such. It’s criminal. It makes us live in fear. Inflation is not just an economic issue, but in fact, produces deep cultural and social sickness in any society it touches. It makes business planning and entrepreneurship—which rely on profit and loss calculations using money prices—far more difficult and risky, which means we get less of both. How do you measure money profits when the unit of measurement keeps falling in value? It erodes capital accumulation, the driver of greater productivity and material progress. So inflation destroys both existing wealth and future wealth, which never comes into being and thus diminishes the world our children and grandchildren inhabit. And it makes us poor and vulnerable in our senior years. After all, saving is for chumps. Current one-year CD rates are below 3 percent, while inflation is at least 9 percent. So you’re losing 6 points just by standing still! By the way, the last time official CPI approached double digits, in the early ’80s, a one-year CD earned 15 percent. I’d like to hear Jerome Powell explain that. By the way, ever since Alan Greenspan began this great experiment of four decades of lower and lower interest rates, guess who hasn’t benefited? Poor people and subprime borrowers, who still pay well over 20 percent for their car loans and credit cards. But here is an unspoken truth: inflation also makes us worse people. It degrades us morally. It almost forces us to choose current consumption over thrift. Economists call this high time preference, preferring material things today at the expense of saving or investing. It makes us live for the present at the expense of the future, the opposite of what all healthy societies do. Capital accumulation over time, the result of profit, saving, and investing, is how we all got here today—a world with almost unimaginable material wealth all around us. Inflationism reverses this. So this very human impulse, to save for a rainy day and perhaps leave something for your children, is upended. Inflationism is inescapably an antihuman policy. Third, hyperinflation can happen here. It may not happen, and it may not happen soon. But it might well happen. And even steady 10 percent inflation means prices double roughly every seven years. We can pretend the laws of economics don’t apply to the world’s leading superpower, or that the world’s reserve currency is safe from the problems experienced by lesser countries. And it’s certainly true our reserve currency status insulates us and makes the world need dollars. Governments and industry mostly use US dollars to buy oil from OPEC countries, hence the term “petrodollar.” It’s certainly true governments, central banks, large multinational companies, worldwide investment funds, sovereign wealth funds, and pension funds all hold plenty of US dollars—and thus in a perverse way share our interest in maintaining King Dollar. It’s true we don’t have easy historical examples of a world reserve currency, like gold, suffering a rapid devaluation across the world (even the Spanish silver devaluation of the 1500 and 1600s was not necessarily caused by a glut in circulating currency). So we’re in uncharted territory, especially given the fiscal and monetary excesses of the last twenty-five years and especially the last two years. But this only means the potential contagion is greater and more dangerous. The whole world can be sickened at once. III. A Story: When Money Dies But as most of you surely know by now, we don’t turn the ship around or win hearts and minds simply with logic and facts and airtight arguments. We need stories, or narratives, in today’s awful media parlance, to gain influence. We need emotional reactions. So I will suggest a story with plenty of pathos to shake people out of their complacency and sound the warning. That story is When Money Dies, Adam Fergusson’s brilliant cautionary account of hyperinflation in Weimar-era Germany. It is the story Americans desperately need to hear today. Fergusson’s book should be assigned to central bankers stat (we wonder how many of them know of it). It’s not a book about economic policy per se—it’s a story, a historical account of folly and hubris on the part of German politicians and bureaucrats. It’s the story of a disaster created by humans who imagined they could overcome markets by monetary fiat. It’s a reminder that war and inflation are inextricably linked, that war finance leads nations to economic disaster and sets the stage for authoritarian bellicosity. We think Versailles and reparations created the conditions for Hitler’s rise, but without the Reichbank’s earlier suspension of its one-third gold reserve requirement in 1914, it seems unlikely Germany would have become a dominant European military power. Without inflationism, Hitler might have been a footnote. Most of all, When Money Dies is a tale of privation and degradation. Not only for Germans, but also Austrians and Hungarians grappling with their own political upheavals and currency crises in the 1910s and ’20s. In a particularly poignant chapter, Fergusson describes the travails of a Viennese widow named Anna Eisenmenger. A friend of mine, @popeofcapitalism on Twitter, sent me her diary from Amazon. The story starts with her comfortable life as the wife of a doctor and mother to a wonderful daughter and three sons. They are talented and cultured and musical and upper middle class. They even socialize with Archduke Franz Ferdinand and his wife, the Duchess of Hohenberg. But in May 1914 their happy life is shattered. Ferdinand is assassinated at Sarajevo, and war breaks out. Wars cost money, and the gold standard wisely adopted by Austria-Hungary in 1892 is almost immediately seen as an impediment. So the government predictably begins to issue war bonds in huge numbers, and the central bank fires up the printing presses. This results in a sixteenfold increase in prices just during the war years. But the human effects are catastrophic, even apart from the war itself. Frau Eisenmenger is luckier than most Viennese women. She owns small investments which produce modest income—fixed in kronen. Her banker quietly urges her to immediately exchange any funds for Swiss francs. She demurs, as dealing in foreign currency has been made illegal. But soon she realizes he was right. There is probably a lesson here for all of us! As the war unfolds, she is forced into black markets and pawning assets to procure food for her war-damaged children. Her currency and Austrian bonds become almost worthless. She exchanges her husband’s gold watch for potatoes and coal. The downward spiral of her life, marked by hunger and hoarding anything with real value, happens so quickly she barely has time to adjust. But her misery doesn’t stop with the end of the war. On the contrary, the Saint-Germain Treaty in 1919 gives way to a period of hyperinflation: the money supply increases from 12 to 30 billion kronen in 1920, and to about 147 billion kronen at the end of 1921 (does this sound like America 2020, by the way?). By August 1922, consumer prices are fourteen thousand times greater than before the start of the war eight years earlier. In just a few short years she endures countless tragedies, all made worse by privation, cold, and hunger. Her husband dies. Her daughter contracts tuberculosis and dies, leaving Frau Eisenmenger to take care of her infant daughter and young son. One son goes missing in the war, one son is blinded, and her son-in-law becomes crippled following the loss of both legs. Food and coal are rationed, so her apartment is a miserable hovel—and she is forced to dodge searches by the “Food Police” looking for illegal hoarding. Ultimately, she is shot in the lung by her own Communist son, Karl, in a fit of rage. There is a haunting and historically accurate silent film about conditions in Vienna during this era called The Joyless Street, starring a young Greta Garbo. Her character sees everything deteriorate around her; even her father beats her with his cane for returning home without food. Once friendly neighbors become suspicious of each other’s stores of bread and cheese, while prostitution becomes rampant. Angry people jostle in line, waiting for the butcher to open; when he does, only the most attractive women receive the scraps of meat available that day. Fistfights become common. Starving children beg for food in front of restaurants and cafes like stray dogs. Everything familiar and beautiful in society becomes degraded and cheapened seemingly overnight. Like a Stephen King horror movie, something very familiar changes into a strange and menacing place. Your neighborhood takes on a different light. People you thought you knew became malevolent strangers. Scapegoating, blame, and snitching become commonplace. Is this beginning to sound familiar, especially after Biden’s sick speech the other night? So, next time one of these sociopaths in our political class wants to spend a few trillion more to pay for a green new deal or a war with China or free college, remember Frau Eisenmenger’s story. IV. The Lessons for Today How do we apply this grim historical lesson from the Weimar period to America today? How do we tell this story? First, we explain inflationism in human terms, to personalize it and de-bamboozle it. Make monetary policy vital and immediate, not boring and dry and technocratic. Again, there are enormous moral and civilization components to monetary policy. Inflation not only harms our economy, it makes us worse people: profligate, shortsighted, lazy, and unconcerned with future generations. Professor Guido Hülsmann literally wrote the book on this. It’s called The Ethics of Money Production. This is maybe the greatest untold story in America today: the story of not only how the Fed fundamentally shifted our economy from one of production to consumption, but what it did to us as people. Don’t let them hide behind complex Fed speak the simple reality: monetary policy is nothing less than criminal theft from future generations, from savers, and from the poorest Americans, who are furthest from the money spigot. The idea that reasonably intelligent laypeople cannot understand monetary policy, that it is too important and complex for anyone but experts, is nonsense. We should expose it. Second, ridicule the absurd idea that “policy” can make us richer. More goods and services, produced more and more efficiently, thanks to capital—and thereby creating price deflation—make us richer. That’s the only way. Not by legislative or monetary fiat. So we should attack any notion of “public policy” and especially “monetary policy.” Inflationism creates a fake economy, a “make-believe” economy, as Axios recently put it. A fake economy depends on enormous levels of ongoing fiscal and monetary intervention. We call this “financialization,” but we all have a sense that our prosperity is borrowed. We all feel it. Capital markets are degraded: a lot of money moves around without creating any value for anyone. Companies don’t necessarily make profits or pay dividends; all that matters to shareholders is selling their stock for capital gains. It always requires a new Ponzi buyer. But we know intuitively this isn’t right: consider a restaurant or dry cleaner which operated without profit for years in the hope of selling for a gain years or decades later. Only the distorted incentives created by inflationism make this mindset possible. So down with “policy”—what we need is sound money! Finally, let us not fear being accused of hyperbole or alarmism. Let me ask you this: what happens if we’re wrong, and what happens if they’re wrong? What they are doing, meaning central bankers and national treasuries, is unprecedented. Fake money is infinite, real resources are not. Hyperinflation may not be around the corner or even years away; no one can predict such a thing. But at some point the US economy must create real organic growth if we hope to maintain living standards and avoid an ugly inflationary reality. No amount of monetary or fiscal engineering can take the place of capital accumulation and higher productivity. More money and credit is no substitute for more, better, and cheaper goods and services. Political money can’t work, and we should never be afraid to attack it root and branch. We need private money, the only money immune from the inescapable political incentive to vote for things now and pay for them later. If this is radical, so be it. History shows us how money dies. Yes, it can happen here. Only a fool thinks otherwise. Tyler Durden Thu, 09/08/2022 - 10:36.....»»

Category: smallbizSource: nytSep 8th, 2022

California Farmworkers Are Marching 335 Miles for the Right to Vote in Union Elections by Mail

Dozens of California farmworkers are making a historic 24-day, 335-mile march for the right to unionize without intimidation Dozens of farmworkers in California are in the midst of a historic 24-day, 335-mile march from Delano to Sacramento for the right to participate in union elections that are free from intimidation by employers. Members of the United Farm Workers (UFW) labor union began the trip toward the California state capitol on Aug. 3, and they are being joined along the route by allies in select towns. The group is marching to convince Gov. Gavin Newsom to sign bill AB 2183, which would allow farmworkers to vote by mail-in ballot to form a union, if they so choose. Because the ballots could be mailed from home instead of submitted at their place of employment, organizers believe farmworkers’ votes are less likely to be influenced by their bosses. [time-brightcove not-tgx=”true”] Read More: If We Really Believe Farmworkers Are Essential, We Must Protect Their Mental Health “We want the right to union representation and to vote from home or mail, like any other vote,” Lourdes Cardenas, 59, and member of the UFW for the past 15 years, told TIME in Spanish. “It’s a right that we deserve as citizens and as workers.” Union members have been advocating for this type of legislation for over a year now, and in September 2021 came close to passing a similar bill, AB 616. That proposal passed through both branches of the state legislature, but Newsom vetoed it, claiming the bill contained “various inconsistencies and procedural issues related to the collection and review of ballot cards” in a public statement. Marchers are now traversing nearly the identical route Cesar Chavez took in 1966 when California farmworkers first brought awareness to the unjust conditions they faced. Chavez was a co-founder of the UFW, which signed its first labor agreement as a result of the march. As the workers once again make an arduous journey, some are reflecting on their original demands. Roberto Bustos, captain of the 1966 farmworkers’ march that led to the UFW’s first union contract, joined this year’s marchers for part of their route. “Again, the farmworkers are still not getting their federal protections, their rights,” he said in a video recorded by the UFW. “So we have to keep on marching.” Why voting by mail matters Voting for unionization, by mail or otherwise, is one way that farmworkers can advocate for better working conditions and labor protections. But agricultural workers remain particularly vulnerable to union-related intimidation because of their precarious immigration status, says Catherine Fisk, director of the UC Berkeley Center for Law and Work., a bipartisan political organization, reports that undocumented farmworkers make up 50% of the agricultural labor workforce. Fisk also notes that their limited literacy has an impact, as over half of all farmworkers say they either do not speak English at all, or only a little, according to the National Center for Farmworker Health. “Being able to vote by mail at home enables them to get assistance from a family member or a friend who is literate in the language that the ballot is printed in,” Fisk tells TIME. Why farmworkers lack better labor protections During the pandemic, the U.S. was swept by a wave of unionization efforts at big employers like Starbucks and Amazon. But farmworkers have not had similar success because they have been historically excluded from federal labor protections, such as the 1935 National Labor Relations Act, which prohibits employers from firing a worker for their involvement or support of a labor union. Agricultural workers’ did not earn the right to unionize until four decades later, in 1975. But even now their labor protections are headed by the separate, state-level agency, the Agricultural Labor Relations Board (ALRB). The bill that marchers are pushing for, AB 2183, which has 50 legislators signed on in support, outlines a method of union voting akin to political elections that allow absentee ballots. Farmworkers would be able to decide between voting at a polling place, by mail, or by dropping it off with the ALRB. This would bring it in line with how union votes are conducted by the National Labor Relations Board (NLRB), the federal agency that protects the labor rights of most private sector employees. What employer intimidation looks like It’s illegal to intimidate workers who try to form a union. But voting while at work made it more likely that farmworkers would vote the way their employers wanted, organizers say—typically, in opposition to a union. A 2013 case against Gerawan Farming—one of the largest peach and grape growers—is an example of the kind of intimidation farmworkers face, Capital and Main reports. Gerwan stalled negotiations with the UFW, enlisting supervisors and other anti-union workers to coerce farmworkers to sign a petition against the union, shutting down production, and blocking entry to fields until they did so. When the time came for a union election in the coming months, workers voted against forming a union. “Even when an election can be held” there is an environment of fear, Elizabeth Strater, the Director of Strategic Campaigns at UFW, says. “It’s just so difficult for farmworkers to cross that final hurdle…The barriers are so enormous.” And as Strater suggests, the evidence of difficulty is in the numbers. UFW’s current membership rests at less than 8,000 union members nationwide, although California alone boasts more than 400,000 farmworkers. The opposition to AB 2183 Western Growers, an organization that represents local and regional family farmers across four states, opposes the bill and says this legislation would undermine the current secret ballot election process, which allows farmworkers to vote privately without any management, supervisors, or union representatives present. Voting by mail would eliminate a worker’s right to a ballot that “is free from coercion from any party,” says Matthew Allen, Vice President, State Government Affairs at Western Growers, in an email statement to TIME. Fisher Phillips, a labor and employment law firm that represents employers, alleges the bill could cause voter fraud because union members could help translate or fill out ballot cards, meaning they could prefill employee’s cards. Fisk says that it’s the same debate that happens during political elections. Democrats urge that “making it easier to vote by allowing voting by mail is the way to go, that voter suppression is a more serious problem than voter fraud,” Fisk says. “And here growers are taking the position on the other side.” Read More: U.S. Labor Unions Are Having a Moment In California, where all registered voters receive a vote-by-mail ballot, using absentee ballots is common. For now, marchers are taking to the streets amid devastating heat waves and temperatures soaring over 100 degrees. Although Cardenas says the walk has been challenging, she feels the support of her faith as marchers carry an image of la Virgen de Guadalupe, a Mexican and Catholic symbol of hope and strength. “No matter how hard these streets are, she won’t let us fall,” Cardenas says. The farmworkers will reach the capital on Aug. 26......»»

Category: topSource: timeAug 24th, 2022