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2019-02-11 10:06 by Karl Denninger
in Macro Factors , 178 references
[Comments enabled]  

In virtually every circumstance the the issues that face people who are working in some fashion can be reduced to "cost push".

This used to be widely understood by economists.  It no longer is.

The reason is political, not factual.  It's not a mistake, it's an intentional act.

In other words they're lying.

Witness this article on CNN, complaining that tax refunds are down 8% on average this year.  Last night while out with a friend after debugging a computer problem most of the day I saw a "news" report on the TeeVee in the establishment saying the same thing and blaming the Trump/GOP tax bill for it.

Unmentioned, of course, is that the rates of tax due dropped and so did withholding tables.  In other words over the last 12 months people have had more money in their paycheck.  Not a huge amount per month, of course -- maybe $50 or so -- but over a year that's $600.

Well, now tax time comes and there's $170 less in your refund.

Hmmm... you got $600 through the year jackass!  What did you do with it?  You're net $430 to the good and this is a "crisis"?

There was not one mention of the bracket and rate changes that led to you having more money all year long, nor that those who are whining now blew the cash during the year.  In other words the TeeVee "reporter" was claiming there was a reason for a cryfest over someone intentionally shooting off their own big toe.

Sorry, but no.

Then there's this one, also from the Communist News Network:

Denver is so expensive that teachers have to get creative to make ends meet

(CNN) For 14 months, teachers in Denver have been negotiating with Denver Public Schools for more pay. On Saturday, the Denver Classroom Teachers Association said talks had broken off and they'll walk on Monday.

Yes, it's about money, many have told CNN. But it's also about the uncertainty of living paycheck to paycheck. It's about the necessity of taking on a second or third job. It's about the untenability of carrying on this way much longer.

At least the headline is right.

But not one single byte of digital ink was spent exploring why Denver is so expensive.

In other words why is it that a $50,000 salary isn't more than enough for a family of four to live on; indeed, one of the profiled teachers has no housing expense at all as that single person lives with their parents!

Remember, we've been told that there is no inflation issue over the last 30+ years.  Well, if there's no inflation (increase in the cost of living) then why is it that all these people have huge amounts of student debt and why is the cost of living so damn high?

One of the two has to be false.  Either all those "struggling" are lying or there has been massive inflation.

Inflation, I remind you, is always and everywhere a monetary phenomena -- and as a result, since Congress is in charge of the Federal Reserve (they not only enabled it originally they control the law governing it) and the regulation of banks that emit credit and thus expand the money supply it is entirely within the responsibility and control of Congress that has, in fact, led to this circumstance.

In other words, as I pointed to my late father in the 1990s, you voted for this **** and as a result you already spent the ****ing money.

You can't spend the same dollar twice.  The outright fraud peddled by people with their "MMT" nonsense is exactly identical to claiming you can.  Ditto for those who says "deficits don't matter", or that we should "use" deficit spending to "prop up" this or that.

The price of all of this is inflation and by definition inflation drives up the cost of living in nominal dollars.

You can't fix this by "giving" people raises because that, in a government job, also results in more dollars being introduced into the economy, especially when any part of it comes from the Federal Government that simply prints it into existence through the Treasury market.

When it comes to schools it's even worse since they're typically funded to a large degree by property taxes.  There's a municipality I'm extremely familiar with that has seen negative real estate prices on a nominal (not real!) basis for more than 20 years as a direct consequence of ridiculously-ratcheting property tax levies.  This is a place where some 15 square miles of island with a huge percentage of it either deeded open space or an airport where there are no houses "requires" more than 20 full-time cops yet it has nearly the lowest property and violent crime rate in the nation. Indeed on a scale of 1-100 (100 being safest) this township rates 95.  The rate of overall criminal activity in this township on an annual basis is three per square mile, one-sixth of the average for the state and and one-eighth of the national average.  Yet they need more than 20 full-time cops to "police."

Their idiocy in school levy is similar.

Denver has the same basic problem as does damn near everywhere else.  There's no accountability -- that township spends a crazy amount per-capita on cops for which there is no demand as there is no crime for them to investigate and arrest perpetrators.  They simply "need" all those cops.  Likewise, Denver has a crazy cost of living because just like most areas because they "need" to spend all this money on schools yet there is no evidence that any of it actually improves educational outcomes.  We also "need" to spend nearly $4 trillion a year in this country on "health care" most -- about 3/4 or more -- is siphoned off through fraud, felony, extortion and price-fixing.

All of these things and more have driven the cost of living in real terms through the roof.

The problem isn't that teachers only make $40,000 or $50,000 a year.  That's pretty good money.

It's that a family of four can't live on that because all the pie-in-the-sky "free money" games have driven up inflation whether reported or not.

It shouldn't be like that and absent fraud and felony it wouldn't be.  Productivity is by definition deflationary; the definition of improving productivity is doing more with less!  Therefore if productivity expands at 2% a year (for example) then what you used to have to pay $100 for now costs $98!  So why is it not $98, but $105?  Because someone stole the other $7 from you, that's why.

The answer is to collapse price, not increase wages.  Increasing wages simply steals more by forcing more credit and currency into the system and prices will rise further.  You can't win that game; you can try to take it from the "rich" but the rich always get their hands on it first and thus they can (and do) evade the impacts more than you can as a common person.  That's just a function of how capital works; the first person to get their hands on emitted credit can evade a part of the inflationary impact while everyone else bears the full price.  No matter how you try to structure this you as a common person lose because some bank gets their hands on it first.

The only answer to stop this is -- again -- to collapse price.  While not all of this problem lies in education and health care a huge percentage of it does and resolving 80% of most problems can be tackled in one or two places.  The remaining 20% is harder because it's more-diffuse but if we resolved the 80% then teachers making $40,000 or $50,000 a year would be doing just fine.

Look to top right and read the pinned articles -- the answer lies there, and only there, simply because that's where the 80% is.  As just one example (which would monstrously collapse total cost of living and property tax levies) you could start right here.  And no, you cannot tax your way out of this because you already spent the damn money over the last 30+ years; the math supporting that fact (not opinion) and the catastrophe that we are facing within the next six years if we do not cut the crap now should also top your "required reading" list.

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2018-07-05 07:00 by Karl Denninger
in Macro Factors , 288 references
[Comments enabled]  

This man is flat-out nuts.

When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.

Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of US imports from China consist of the offshored production of US corporations. Offshoring is a substantial benefit to US corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many—the former American employees who formerly had a middle class income and expectations for their children.

He goes on to argue that it's not China's fault -- it is the fault of our corporations, and thus we have to deal with "our" corporations.

Uh huh.

A business exists to make a profit.

Laws define what is legitimate to do in the pursuit of said profit, and what is not.

Millions of Americans lost their jobs because the law allowed their jobs to be offshored to literal slave-labor encampments without consequence.

And it is not just China.  In fact, China is just one of many offenders.

The results are plain. In Kuala Lumpur cranes stretch outward among the gleaming towers in a perpetual construction boom powered by foreign investment. The streets are spotless and well policed, the water is clean, and the politics are relatively stable. Consumers around the world benefit from products like mobile devices, circuit boards, and LED screens.

At the heart of this economic success are migrant workers. From Bangladesh, Nepal, the Philippines, Indonesia, and India, they arrive at Kuala Lumpur International Airport by the scoreful, papers in hand, hoping for a better life. Estimates of the number of foreign workers in Malaysia vary widely, from the government’s count of almost 1.8 million to perhaps twice as many, which would amount to a quarter of the country’s workforce. Migrant-worker advocates estimate one-third of those workers are undocumented.

Malaysia allows and prospers through what amounts to slave labor; in other words, modern-day human trafficking to obtain labor for pennies an hour.

This is nothing new; in fact it's as old as people.  Mexico was once one of the worst in this regard; they didn't give a crap about the health of their slaves or even their longevity; they had access to so many of them that there was no economic incentive to even feed their slaves.  In other words it was cheaper to buy a new slave than feed the one you have.  America's slavery, for all its warts, didn't devolve into that but it wasn't from the "caring" of the slave-owners -- it came from the economics.

Has it really changed?  Nope, nor will it ever except where the law forces it to.

This is why in my book Leverage I pointed out that the only way to deal with this crap and stop it is to apply Wage and Environmental parity tariffs without exception and to ensconce those in law for any firm that wants to do business in the United States, without exception.

PCR says this is the fault of the Fed.  Of course he does -- he doesn't want to deal with the fact that he, personally egged on the offshoring and "free trade" bull****, never mind his time in advocacy with the Hoover Institution, Georgetown, George Mason University, an associate editor for the Wall Street Journal (which has an unabashed record of promoting so-called "free trade") and, of course, Reagan's "supply side" economics which were little more than a sop to offshoring and exploitation of slavery.  Oh, and let's not forget his advisory role to J.P. Morgan!

It's not like the big banks had anything to do with this, right? smiley

Reagan had the distinction of running enormous deficits during his Presidency, which inflated GDP.  Everyone cheers for GDP increases but nobody in the media, nor Roberts himself, points out that mathematically GDP will always increase by the exact amount all branches of government combined spend in deficit, whether they allegedly issue "bonds" to "fund" that or not.

Nobody issues bonds or takes down a deficit for money they do not immediately use.  If your local district issues a $20 million bond for a school improvement it immediately spends the $20 million.  If they taxed the money from you first the net GDP impact would be zero -- you forfeit the $20 million to the school (which means you don't spend it) and then the school spends it.  $20 million minus $20 million is zero.

But if they can spend it first then they take nothing from you initially and GDP goes up by $20 million.

The problem is that theoretically they must take the $20 million later to pay off the bond but history says they never do. Instead the bond is rolled over and only the interest is paid, so the $20 million appears to be "free" in economic terms and thus GDP continues to go up when they issue the next one too.

It's not true in fact and what's worse is that the "extra money" flying around makes the price of everything go up.  Now if there was no turd-world slave labor there would be a check and balance on this that would come in the form of rapidly-rising wage demands (when you get to the point of being unable to feed yourself why go to work?) and that cuts off the game.

To prevent a replay of this after it happened during Nixon's administration (and interest rates were forced higher in response) PCR and the rest of the "free market" screamers passed law and policy to make it both legal and trivially easy to find a source of slaves to replace those pesky people in America who would otherwise demand more money to keep making both cars and computers.  They are also the same people who insist that illegal Mexicans be allowed to flood the nation to pick oranges, strawberries and roof houses.

It's not that Americans can't do those jobs it's that you can't ask Americans to do so them for $3/hour and expect them to be able to survive.  The price of a house or strawberry package would skyrocket immediately and cut off the unbacked credit issuance.

In other words it's all fraud and PCR knows it.

But this is what passes for "economic wisdom" these days, never mind "reporting."

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