Posted on 17 November 2019
by John Mauldin, Thoughts from the Frontline

Nothing is forever, not even debt. Every borrower eventually either repays what they owe, or defaults. Lenders may or may not have remedies. But one way or another, the debt goes away.Please share this article – Go to very top of page, right hand side, for social media buttons.One of Western civilization’s largest problems is we’ve convinced ourselves debt can be permanent. We don’t use that specific word, of course, but it’s what we do and is why government debt keeps rising. We borrow faster than we repay previous borrowing – and I mean governments everywhere, China as well as the US.Our leaders have no real plan to reduce the debt, much less eliminate it. They just want to spend, spend, spend forevermore.

Posted on 16 November 2019
by UPFINA

Weekend Reading from UPFINAThe Q3 NY Fed Household Debt & Credit report was released this week, but we will start this discussion with data updated as of Q2. U.S. consumers are in great shape. This cycle has been a huge deleveraging event. Nominal household debt even fell in the first few years of this expansion as it bottomed in Q2 2013.Please share this article – Go to very top of page, right hand side, for social media buttons.If this expansion started when debt started increasing in 2013, it would be 6 years old and fewer people would fear a recession. The fact that this expansion is the longest since the 1800s makes people unusually worried about a recession. 2/3rds of the economy implies that the probability of a deep recession is not

Posted on 13 November 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsRecently I came across a fantastic blog entitled Rejection Letters of the Philosophers. It is a satirical blog in which famous philosophers are imagined to have submitted their manuscripts to their peers via the contemporary academic peer-review system. The humour lies in writing the rejection letter from a completely clueless and bigoted referee who merely want to defend already-existing ideas. (Sorry to be so analytical, I know that to explain the joke is to kill it, but I cannot assume that all my readers will go and read the blog).Please share this article – Go to very top of page, right hand side, for social media buttons.After I read the posts, I sent in one of my own. In it I

Posted on 10 November 2019
by Ellen Brown, Web of Debt

This paper was written for the Economics of Happiness Conference co-sponsored by Local Futures, held in Jeonju, Korea, on October 16-17, where the author was the keynote speaker.Please share this article – Go to very top of page, right hand side, for social media buttons.Satisfaction in the workplace is a major component of the “happiness" index; but it is a satisfaction that young people joining the workforce today are not feeling. In a 2017 book titled Kids These Days: Human Capital and the Making of Millennials, Malcolm Harris asks why the millennial generation – those born between 1981 and 1996 – are so burned out. His answer is, “the economy." Millennials are bearing the brunt of the economic damage wrought by late 20th

Posted on 09 November 2019
by John Mauldin, Thoughts from the Frontline

If you are a computer (other than the newest experimental quantum ones), your world is entirely binary. Everything is some combination of zeroes and ones. The machines can do marvelous things with those two digits but they have limits.Please share this article – Go to very top of page, right hand side, for social media buttons.We humans don’t have to think in either/or terms, yet we often do. I see it in the economic outlooks that cross my screen. Some forecast imminent doom, others endless boom. But in reality, there is lots of room between the extremes.I’m known as the “Muddle Through" guy, which is another way of saying I think “both/and" instead of “either/or." We can have both a successful outcome and

Posted on 07 November 2019
by Philip Pilkington

Article of the Week from Fixing the Economists While doing my dissertation on constructing a new theory of asset-pricing I became exposed to some contemporary theories. To be frank, I didn’t really know how to integrate them because they seemed to be ether (a) intuitively incorrect or (b) useless for what I consider to be the real underlying dynamics of asset-pricing, or some combination of both. The CAPM was a combination of both.Please share this article – Go to very top of page, right hand side, for social media buttons.It seems to me that the CAPM begs more questions than it answers. Or, at the very least, it restricts the field of inquiry to an extent which I do not think can be properly justified.The model seeks to estimate a

Posted on 06 November 2019
by UPFINA

Article of the Week from UPFINABoth the Markit manufacturing PMI and the ISM manufacturing PMI had weak October readings, but they improved. When these indexes go from weak to okay, that’s a great signal for stocks. That’s one of the reasons why the industrials sector rallied 2.18% (on Friday) and is very close to its January 2018 record high.Please share this article – Go to very top of page, right hand side, for social media buttons. The graphic below shows that when the ISM PMI is below 50.7 and the prices paid index is below 53.9, stocks perform the best.Historically, now is great time to buy stocks. The bearish counterpoint is stocks are up from when the downcycle started. Stocks fell in Q4 2018, but since then they have more than

Posted on 04 November 2019
from Voxeu.org

— this post authored by Gauti Eggertsson and Lawrence H. SummersSeveral central banks implemented negative policy rates in response to the financial crisis, but there is little consensus on the overall effect of this policy. This column examines the transmission of policy rates to bank lending rates, focusing on the case of Sweden. While the first two cuts in negative territory by the Riksbank appear to have been transmitted to lending rates, transmission seems to have broken down for the second two cuts. The findings suggest diminishing returns on interest rate cuts at negative rates.Please share this article – Go to very top of page, right hand side, for social media buttons.After the financial crisis of 2008 several central banks cut

Posted on 04 November 2019
from Voxeu.org

— this post authored by Willem ThorbeckeJapanese exports in electronic parts and components dramatically fell in value after the Global Crisis and have not recovered until today. This column investigates why Japan lost this comparative advantage. It argues that capital inflows seeking safe havens during the crisis led to a sharp appreciation of the yen and caused yen export prices to tumble relative to production costs. Plummeting profits then hindered Japanese firms from investing enough in capital and innovation to compete with rivals.Please share this article – Go to very top of page, right hand side, for social media buttons.Japanese researchers began studying transistors three months after they were invented at America’s Bell Labs in

Posted on 02 November 2019
by John Mauldin, Thoughts from the Frontline

Every investment decision should have an exit strategy. What will you do if your idea doesn’t work? Ideally, you make that decision before you invest. Mistakes are inevitable but survivable if you recognize them quickly and act to minimize their costs.Please share this article – Go to very top of page, right hand side, for social media buttons.The same is true in business, international relations… or even a chess game. Great ideas don’t always work out as expected. Then what?In last week’s article, we discussed some serious flaws in the decision to bring China into the world trade system. People across the spectrum mostly see this now; although they differ on what to do about it.When the US and ultimately the

Posted on 02 November 2019
by UPFINA

Weekend Reading from UPFINAThe latest Case Shiller home price index report is for August as it came out a week later than the FHFA reading which showed price growth fell from 5% to 4.6%. Even though this report was late, it has a few interesting tidbits. Yearly national price growth rate rose for the first time since March 2018 and the 20 city seasonally adjusted monthly growth rate was negative for the 2nd time since March 2012.Please share this article – Go to very top of page, right hand side, for social media buttons.Let’s delve into how that happened. Firstly, national yearly growth only increased from 3.14% to 3.165%. That’s barely a difference, but it looks like an improvement because of rounding. The 2 year growth stack actually fell

Posted on 30 October 2019

by UPFINA

Article of the Week from UPFINA

In September, the treasury surplus was $82.8 billion which missed estimates for $106 billion. The deficit was $200.3 billion in August. There is usually a surplus in September (it was $119.1 billion last year). The fiscal year 2019 deficit was $984.4 billion which is 26.4% larger than last year. That’s terrible when you consider that the labor market got fuller. With the unemployment rate the lowest since December 1969, the treasury budget should be in great shape, but it isn’t.

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Extremely High Fiscal Deficit

The chart below measures the deficit cyclically. Because the deficit is so large this late in the cycle,

Posted on 30 October 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsEndogenous money theory, which is usually associated with the Post-Keynesian school of economics, has long told us that central banks do not control the supply of money in the economy. Instead the amount of money is determined by the demand for money which, in turn, is determined by the demand for credit. This idea, however, leaves out what is actually a rather important component: counterfeiting.Please share this article – Go to very top of page, right hand side, for social media buttons.Of course, endogenous money theory is not at odds with the counterfeiting of money – after all, why would anyone counterfeit if it were not for their demand for money – but it is rarely discussed. I

Posted on 27 October 2019
by John Mauldin, Thoughts from the Frontline

And once you see it, you cannot unsee it.I’m not alone. Here is what we are observing at macro scale:That it has been common knowledge – something we all knew that we all knew – since the Nixon years that by simply exporting capitalism and free enterprise, we would unshackle the forces of freedom in China.Please share this article – Go to very top of page, right hand side, for social media buttons.That this common knowledge is [now] breaking.Today, we all know that we all know that the influence of the Chinese Communist Party over what you and I do has been aided, not thwarted, by the nominal Chinese embrace of capitalism. I think that this – not the NBA, or Hearthstone, or Disney, but common knowledge about the

Posted on 27 October 2019
by Elliott Morss, Morss Global Finance

IntroductionI live in the Berkshires. According to various measures, the Berkshires has both good and bad schools. The Massachusetts Comprehensive Assessment System (MCAS) test results show this for the lower grades:Please share this article – Go to very top of page, right hand side, for social media buttons.Source: MA Dept. of EducationAnd for high schools:Source: MA Dept. of EducationThe US New and World Report offers a more comprehensive picture and tells the same story (the lower the rank, the better the school):Source: US News and World ReportProblems in the lower scoring schools stem largely from changing economic conditions in the Berkshires. Over the last few decades, the northern Berkshire towns have lost a

Posted on 26 October 2019
by UPFINA

Weekend Reading from UPFINAThe U.S. economy is becoming less cyclical which means it needs a greater decline in its cyclical part to generate a recession. The fact that the U.S. consumer has deleveraged in this cycle is probably the most important reason the economy is in its longest expansion since the 1800s. The secondary reason is the rise of acylical sectors like healthcare. These healthcare jobs are replacing the old manufacturing jobs of previous decades.Please share this article – Go to very top of page, right hand side, for social media buttons.This is a big shift since manufacturing is extremely cyclical. There have already been two manufacturing slowdowns in this expansion (we’re in the 2nd one now).If the U.S. labor market relied more

Posted on 24 October 2019
by Philip Pilkington

As is often pointed out marginalist economics tends to be characterised primarily by a couple of distinct axioms that operate ‘under the surface’ to produce its key results. Varoufakis and Ansperger neatly characterise these as: the axiom of methodological individualism; the axiom of methodological instrumentalism; and the axiom of methodological equilibration.Please share this article – Go to very top of page, right hand side, for social media buttons.Having dealt with the third of these axioms at some length before, I wish to focus here on the first two and try to show that they are intimately intertwined with one another and ultimately grounded in a materialist ontology. In order to do this, we must go right back to the philosopher

Posted on 23 October 2019
by UPFINA

UPFINA Article of the WeekThe very solid August retail sales report was revised higher which is the good news from this latest update. Headline monthly growth was revised from 0.4% to 0.6% which is very strong. Yearly real growth was 2.56% which was the highest since August 2018; yearly nominal growth was 4.36% which was the highest since October 2018.Please share this article – Go to very top of page, right hand side, for social media buttons.As you can see, both were the strongest of the year. The September report wasn’t as great as it missed estimates widely and growth fell. It was still a solid report as both real (2.34%) and headline (4.1%) yearly growth were the second highest since August and October 2018.Specifically, headline monthly

Posted on 20 October 2019
by John Mauldin, Thoughts from the Frontline

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.Please share this article – Go to very top of page, right hand side, for social media buttons.There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.Yet this difference is tremendous; for it almost always happens that

Posted on 17 October 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsJohn McHale over at Irish Economy wrote a post in 2013 on the possibility of a default by a sovereign currency issuer. In the post he discusses Paul Krugman’s stripped-down Mundell-Fleming model in which Krugman shows that a country issuing a sovereign currency not only cannot default but if there is a run on the government bonds of this country the result will be devaluation which will then lead to an expansion of output as exports increase.Please share this article – Go to very top of page, right hand side, for social media buttons.Krugman’s model – put together in late 2012 – emulates the argument that MMT and other Post-Keynesian economists have been making for years: if a country

Posted on 16 October 2019
by UPFINA

Article of the Week from UPFINAThe August University of Michigan consumer confidence report was highly discussed because it showed a big decline in confidence. It caused some to think the trade war was significantly hurting consumer spending. We now have the benefit of hindsight which tells us retail sales growth improved, but PCE growth didn’t.Please share this article – Go to very top of page, right hand side, for social media buttons.In the subsequent two months of University of Michigan reports, confidence has improved even though new tariffs were added and the trade war got worse. The preliminary October reading we are about to discuss doesn’t include any data measuring confidence after the announcement that phase one of the trade deal with

Posted on 12 October 2019
by John Mauldin, Thoughts from the Frontline

Life would be so much easier if we didn’t have to worry about our financial futures. Though I suppose we don’t have to worry. Animals don’t. Squirrels instinctively store away nuts and thus live through winter without much thought.Please share this article – Go to very top of page, right hand side, for social media buttons.We humans have retirement winters, and we’re more sophisticated than squirrels. We generally outsource the job of managing our nuts/money to professionals. All well and good if we save enough and if the professionals do their jobs right. As we saw last week, the elected squirrels who run Social Security haven’t evolved to face changing conditions. Our Social Security nuts are in danger.But the

Posted on 10 October 2019
by Philip Pilkington

Fixing the Economist Article of the WeekWhat if all the world’s inside of your head Just creations of your own? You can live in this illusion You can choose to believe You keep looking but you can’t find the woods While you’re hiding in the trees. . . – Nine Inch Nails Right Where it BelongsPlease share this article – Go to very top of page, right hand side, for social media buttons.In two previous posts (here and here) I have been dealing, directly or indirectly, with the philosophy of Bishop George Berkeley. In the second post in particular I have become a little uneasy that my aim may have seemed to have moved too far away from the general content of this blog. In order to remedy this I hope here to tie those discussions back into

Posted on 06 October 2019

by John Mauldin, Thoughts from the Frontline

I’m filing this letter on the day I turn 70 which, among other things, means I start receiving Social Security benefits this month.

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The good news, at least for me, is I am getting a whale of a deal from Social Security compared to later generations. Frankly, I was surprised at my monthly benefit amount, because I never really paid attention to what it would be. That one payment will put me and Shane within shouting distance of the US median household income, and I am still working. It’s a far cry from my humble roots. I have been both blessed and lucky.

Unfortunately, my good news is also bad news for younger

Posted on 03 October 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsBishop George Berkeley is, in my opinion, the most profound philosopher ever to have written. He came up with many ideas in the early modern period – that is, around the beginning of the 18th century – that were only integrated into modern science around the beginning of the 20th century. What is more, most Anglophone philosophy today still operates under notions that have been stale in scientific discourse since Mach and Einstein and which should have been overturned by Berkeley nearly four hundred years ago.Please share this article – Go to very top of page, right hand side, for social media buttons.Modern Anglophone philosophy, for example, usually operates under Kantian notions

Posted on 29 September 2019
by John Mauldin, Thoughts from the Frontline

I often say a writer is nothing without readers. I am blessed to have some of the world’s greatest. Your feedback never fails to inspire and enlighten me.Please share this article – Go to very top of page, right hand side, for social media buttons.Last week’s That Time Keynes Had a Point letter brought many more comments than usual. Apparently Keynes is still provocative 73 years after his death, no matter what you say about him. But my real point was about the twisted economic thought that is having dangerous effects on us all. And we can’t blame it just on Keynes.Today I want to share some of the feedback I received, add a few thoughts, and then show you some real-world consequences that are only getting

Posted on 27 September 2019
by Rick Davis, Consumer Metrics Institute

BEA Revises Second Quarter 2019 GDP Growth Downward to 2.01%In their third and final estimate of the US GDP for the second quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.01% annual rate, down -0.03 percentage points (pp) from their previous estimate and down -1.08pp from the prior quarter.Please share this article – Go to very top of page, right hand side, for social media buttons.All of the revisions in this report can be characterized as "statistical noise." None of the line item revisions are material to our understanding of the state of the US economy. Annualized household disposable income was revised $9 lower than in the previous report, and the

Posted on 25 September 2019
by Philip Pilkington

David Hume is today the philosopher most often associated with what might be termed ‘radical empiricism’. The problem, of course, as I have pointed out before, is that he was not the originator of what should properly be recognised as a conceptual revolution. More than this, the thought of the person from whom he took his ideas was completely perverted in the process.Please share this article – Go to very top of page, right hand side, for social media buttons.The person whose ideas have been tampered with was, of course, the Irish philosopher George Berkeley. It was George Berkeley who lay the ground for radical empiricism with his observation that all abstract general ideas are merely instances of particular ideas. To get a handle

Posted on 25 September 2019
by UPFINA

UPFINA Article of the WeekCov-lite loans are loans with fewer covenants. That means they have fewer restrictions for borrowers. A lender might set a covenant based on leverage to ensure the borrower doesn’t fall into trouble. If the borrower violates a covenant, the lender can reprice the loan.Please share this article – Go to very top of page, right hand side, for social media buttons.As you can see from the light blue line in the chart below, cov-lite loans are about 80% of leveraged U.S. debt.Source: NuveenThe situation is a bit more complex than saying these new loans are black boxes so it will definitely end badly in the next recession.It takes high confidence to claim all these loans given out by lenders are a mistake. Obviously, lenders

Posted on 22 September 2019
by John Mauldin, Thoughts from the Frontline

"Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."…―John Maynard KeynesPlease share this article – Go to very top of page, right hand side, for social media buttons.I begin with this Keynes quote because, while true, it doesn’t go far enough. The problem isn’t simply defunct economists or "scribblers of a few years back." We are in the grip of economists who, far from being defunct, hold great power. Whether they hear voices in the air (or Twitter), I can’t say, but they are indeed madmen in