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2024-05-15 08:49 by Karl Denninger
in Macro Factors , 327 references
[Comments enabled]  

Let's do the forward look first, since that's what really ought to matter -- PPI.

The index for final demand less foods, energy, and trade services moved up 0.4 percent in April after rising 0.2 percent in March. For the 12 months ended in April, prices for final demand less foods, energy, and trade services increased 3.1 percent, the largest advance since climbing 3.4 percent for the 12 months ended April 2023.

So much for the forward looking indices relaxing.  Uh, nope.  And what is especially troublesome is that both goods and services moved in unison.

Remember we are a majority-services economy.  People often disregard goods inflation in the pipeline with some level of justification because its simply a smaller piece of the basket and is subject to quite a bit of discounting as you go through the stages of production.  Neither is true for services.

Now there is one piece of the goods side that could be reasonably dismissed, particularly since a large part of it has come back out in the last couple of weeks: Gasoline prices.  Some will point to foods showing negative price changes but nearly all of that is due to fresh and dry vegetables, which are not a large component of the index in any event (nor of most people's diet.)  Natural gas was also down but this is a seasonal thing that is expected; winter is over, so residential gas demand is now nearly all for cooking and water heating, which is the usual pattern -- and leads to lower prices in the spring.

There is a "pig in the python" problem in energy materials in the intermediate table, however, and strongly suggests that the passthrough will wind up in the CPI in two to three months.  That's not good as, of course, that's right into the maw of the summer travel season.  We'll see.

Nothing else really stands out to me beyond ordinary seasonal variation.

Then we have the CPI....

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, after rising 0.4 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The index for shelter rose in April, as did the index for gasoline. Combined, these two indexes contributed over seventy percent of the monthly increase in the index for all items. The energy index rose 1.1 percent over the month. The food index was unchanged in April. The food at home index declined 0.2 percent, while the food away from home index rose 0.3 percent over the month.

Ex food and energy was up 0.3%, which is down one tick from last month.  But all less food and energy is still up 3.6% over the last 12 months which remains close to double the so-called "2% target."

As in the PPI report there was a spike in gasoline which was coincident with the eclipse -- whether that was pure gouging or not I do not know, but it was definitely there and it definitely reflected back into the CPI (as it should have.)  That's a one-off and most of it has come back out already.

But -- both OER and rent were still up wildly strong -- over 5% annualized.  Of course there will be people that really like that idea but facts matter and non-discretionary purchases, with housing among them, don't just have to stop going up at close to triple the so-called target they must actually come down in gross terms.  

What's much worse is that hospital and related services, along with elderly care, are rising at a crazy rate, up at close to 8% annualized and 13.9% for elderly people.  Again I remind you these are compounding figures so for elderly people this means a double in six years.  How anyone thinks that can continue on a forward basis is beyond me -- there's just no money to do that, and its the driver of CMS cost acceleration although the latest Treasury Statement shows slight improvement over last fiscal year.  There is no way to know at present if that's a deferral of payment out of CMS (it might be) or if there's real progress.  We simply need more time to know.

Car insurance continues to wildly spike higher -- up 1.4% this month alone and 22.6% annualized.  That has not resolved, so the idea that this was a "one off" is thus far just plain wrong.

The market seems to love this number -- but I'll take the under on that one.  The IRX ticked up a couple while the 10 year is down materially, further widening the spread which just continues the run of what, on an objective basis, certainly appears to be an illogical Pavlovian response in asset markets.

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2024-05-13 07:00 by Karl Denninger
in Macro Factors , 741 references
[Comments enabled]  

Let's do the easy one first: There are plenty of people talking about taking Social Security early because it is likely to "go broke."

I'm going to make an assumption here: You're either not working or intending to not when you take it.  If you are working and have employer-provided health insurance then this doesn't apply to you, but if not it most-certainly does.

The problem with taking Social Security early is that Social Security distributions count toward MAGI and thus will reduce your Obamacare (PPACA) subsidy.  Right now the former "cliff" that whacked you at about $40,000 of income (cutting the subsidy off entirely) has been abated by pandemic-era law changes but those are scheduled to expire in a couple of years and they might not be renewed.  Indeed they are a serious part of the fiscal trouble that the Federal Government is in right now with its deficits -- and letting them expire requires doing nothing where extending them will require actual passage of a bill.  Choosing to take Social Security cannot be taken back and if you get nailed by this the cost will be extraordinary, as the older you are the worse medical insurance costs become.  This could, quite-trivially, eat half or more of your Social Security check so do not ignore it -- this risk is very real and for nearly everyone, unless you have no other income, it makes taking it prior to 65 flat-out silly on a cost basis since you cannot control whether that subsidy cliff will return and you can't change your mind either.

This risk goes away at 65 and is replaced with a known and inescapable one in that you both qualify for basically have to enroll in Medicare, which is typically (if you take Social Security) deducted directly from your check.  While there is plenty of risk in that program as well both in terms of payouts and costs at least at 65 you're not subject to, at a modest income, having an enormous clawback that could easily expose you to $20,000 a year worth of insurance expense or more, entirely wiping out your Social Security payment!  That risk absolutely does exist prior to 65 so pay very, very careful attention.  Note that if you're working now that three year period is still at-risk because you could, of course, lose your job.

I have had plenty to say about the political and cost-shifting aspects of both these programs over the years -- and if we don't get the medical side under control Medicare will collapse -- or worse, drag the entire federal government down the sewer with it.  But that's a subject for another time and, frankly, likely one for the other side of the blog.

The second is this piece here from CNN on college costs.  

Here's my two cents on this article:

That which you wish to gift your child in the form of college expense is fine, but you should never go into debt or cosign any of their debt for that expense, and it is very, very important that you drill into your kid's head that whatever pie-in-the-sky views they have of a profession it can change from under them in very bad ways with little or no warning.  If your child is truly in the top five or ten percent of capability within a given field they'll be ok most of the time provided the upper end of the field has an earnings potential sufficient to cover the expenses but many such fields don't and most don't unless you're in that top five or ten percent.  Further, essentially all fields are always under some sort of attack, whether deliberate or not.

It isn't just offshoring, the "promise" of AI and similar -- but that is certainly part of it.  It is also just the odds of society generally in that technological advancement and change is not predictable, it takes place over decades and yet you put in four or six years which sounds like a reasonably-stable period of time but in today's world it is not.  When I was younger if you could code you were in pretty good shape.  But what passes for "coding" today among most isn't what I'd consider paper-bag worthy and unfortunately industry has figured out how to offshore or H1b that so if you're not in that top 10% you got problems.  Never mind the risk that you are trained to use some set of technology that becomes a "runt" a few years later such as occurred with mainframes and minicomputers when I was younger.

This is a tolerable risk if you go to school without taking on debt as you still learned something of value, it likely can apply somewhere else (even though not entirely) and thus while nobody likes having the rug ripped out from under them through no fault of their own life goes on.  If you've taken on six figures worth of debt and this happens you can be ruined and you can't file bankruptcy in these cases to discharge it either.

That's something we should have never done but we did and it is why the cost of school has exploded upward.  You can't fix that today but you don't have to play that game and shouldn't with your future.

There are reasonable loan options -- Stafford, for example. But the rest are not, particularly those involving parent co-signatures.

In addition think long and hard about whether college makes sense at all.  There are trades that will never go away and can't be offshored.  Is that a perfect answer?  No, but it is something to consider and in many cases can lead to a six-figure income quite rapidly.

Reality is that ultimately most people who really do well didn't do it going to college and getting a job.  They did it starting and running a business which may or may not have included college as a source of inspiration, connections and ideas.

Finally, do realize that with the wild-eyed price escalation in multiple areas of the economy over the last 20 years (not just the last four!) there is every reason to believe we are on the verge of a serious and long-term economic dislocation.  Exactly what form it will take and what fields will be ruined -- or advanced -- is not possible to determine with enough reliability to bet on it successfully. There is an enormous difference in outcomes if you find yourself in a tough spot and have $20k in liquid cash and no debt as a young person .vs. being $100k or more in the hole and having no cash at all, literally living on a credit card's float with less than $500 in your bank account.  You do not want to be in the second group but a huge percentage of Americans are of all ages and if you put yourself in that position you're one piece of bad luck away from disaster.

Time is the one commodity nobody can get more of, no matter how much money they have or make.  Its common to believe, for example, that if you're a 20 year old woman you can pursue business interests until you're 30 and then settle down and start a family.  This is foolish.  It's even more foolish to think as a young man that you can go find yourself a partner, marry her and start a family when you're 40, having spent the previous 20 years advancing your earnings potential.  Yes, you can be one of the exceptions that has it work out, but the odds are not in your favor.  Figure out what's important; if its business and accumulating money then fine, but don't kid yourself that this comes without cost or that you can chase those other things "later" and it will all work out.  It probably will not but there are myriad people who will try to sell you on exactly that, often for their own purposes whether financial or simply to stroke their own egos.

Youth is a time of idealism and people prey on it.

Don't be the prey.

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2023-11-06 07:00 by Karl Denninger
in Macro Factors , 1439 references
[Comments enabled]  

There is a collapse coming.

We can either try to mitigate it or not.

Either way its going to be bad, but if we do nothing -- or worse, do more destructive things or continue those we're doing now, it will be catastrophic.

Its simply the mathematics of the problem; at a 1.6 fertility rate (when 2.0x is required) in 20 years you're in trouble, and in 40 you're in really, really serious trouble.

No, you can't fix it with immigration. That's a trope and it doesn't work because if the situation that led to it is still present bringing in more, new people simply result in them making the same decisions in a generation or two and you've accomplished nothing.

You have to change the paradigm in a way that reverses the disincentives and threats.

It takes a full generation before what you do will bear fruit.  Why?  Because that's how long it takes for the generation growing up now to reach adulthood and have a good childhood themselves, and thus want to have children.

Musk is crowing about screwing like a rabbithe has the analysis correct but he's one successful sperm in a vagina and thus the odds of him personally making a difference, even if his mantra was to catch fire with every other billionaire, is zero.  He'd do a lot more for humanity if he managed to get every such billionaire to tell the government of the United States to stop importing people via both illegal immigration and H1b/H2 visas and shut down all deficit spending, collapsing both asset prices and the cost of living or else he and the rest of the billionaires will take their money and production to a nation that does.

Of course he won't do that because his little fiefdom and billions requires said outside people and schemes, all of which are a disincentive for ordinary folks to have kids as those "imported" bodies compete for jobs, drive up housing costs by presenting additional demand for same and slam downward wages -- and every one of those actions makes the calculation for all thinking people of ordinary intelligence and gifts, when it comes to the decision to have kids, worse.

But for those things he wouldn't have any money at all -- and he knows it.

Let's face facts folks: Nobody who you want to have children will bring said children into a world where they believe said kids will get screwed.

That doesn't mean kids won't come anyway; they will, for some.  Some adults don't care what happens to their offspring, some actually use them as meal tickets and more.  Some people are also always going to be eternally optimistic and therefore none of this will factor into their decisions.  And some will have "accidents" and for personal or religious reasons decide to bear and attempt to raise said kids.  But none of that changes the basic facts: People who are of decently-competent intellect and of good character, in a world of technology where one can choose when and whether to reproduce, will only do so voluntarily if they believe it makes sense AND their offspring will get a fair shake.

Destroying the fiscal health of the nation by emitting 8% of GDP in unbacked credit via deficit spending is the exact opposite of such.  Simple mathematics tells us that this results in you losing half your standard of living in less than ten years and it takes about 20 years to decide to have a kid, have said kid and raise him or her to adulthood.  Run those fiscal deficits and you've told all the thinking adults that child's standard of living, when they reach adulthood, will be one quarter of yours today assuming your children are as competent and intelligent as you are.

Would anyone who has two IQ points to rub together have children in that situation, when the options facing said kid 20 years hence are privation to this degree or civil war (and the attendant risk of being dead!) to overthrow said government?


Importing millions of unskilled workers who then drop kids who have parents with no skills, and thus no realistic means of learning much from said parents yet are citizens in the gambit to cheapen labor screws the next two generations sequentially.  Oh sure, in two generations or so those kids having their own kids will "outgrow" that but then they are able to compute the same odds and they won't have children either!  Think I'm wrong?  The data says I'm not; within two generations those who were the children of illegals stop having lots of babies too and its for the same reason, I'll wager: They're convinced their children will get screwed and have one quarter of THEIR standard of living -- and they remember living eight to a one bedroom apartment!

You think all those glorious "vacation venues" bringing in H2 workers, and all those "tech" places with H1bs, mean parents have a great experience for their kids at lower cost?  Maybe, but in addition they have seen the destruction it wreaks on said kids.  Please explain how many of Americans you saw of college age working scooping ice cream or similar this summer to make enough money to go to college in the fall.  Zero -- or nearly so -- right?  That's what I saw all over the country.  Now if I'm 20, and thinking about making some kids, where are my kids going to be in 20 years?  Unable to get a summer job and unable to afford college too.  Many see this, keep their pants on and both Trojan and the birth control pill companies keep having decent quarterly reports.

Good jobs with nice pay tend to be concentrated around cities.  How's Chicago doing these days?  Yeah, getting mugged while walking around North Michigan Avenue (assuming you don't get shot, which is of course even worse) is great.  Do you want to expose children you might have to that risk?  Hmmmm..... probably not.  Oh, and speaking of which how are you going to afford a place to live with said kids when the cost of housing and property taxes have skyrocketed by more than double over the last decade or so -- and there's a new round of screwing headed for you in this upcoming year's bill, all so you can be a "sanctuary" for a bunch of Venezuelan fighting-age men who illegally came to the US!  All of this is very conducive to choosing to bear children, right?  I mean its not like you're going to have to pay those property taxes at an ever-escalating rate for the next 20 years if you choose to have kids, right?  Oh, wait.... you are!

Think about the process of bearing said kid as a microcosm of the hosing you may well get on an entirely-arbitrary and 100% out of your control basis.  You (or your wife if you're a guy) is facing an unknowable bill from the hospital for having said kid and you will get GRILLED about whether you own a car seat before the child is even toweled clean!  Answer "wrong" and CPS gets called and crawls up your backside.  Oh, and they will jab said newborn before you can object yet if what they give that kid seriously screws him or her they're immune from being sued over if it and you are forced to pay that bill too.  That's the first of seventy such immunizations you must give to said child or they cannot go to school at all, the manufacturer and the doctor are absolutely immune from liability if said drug seriously injures or kills your child and of course you get the bill and possibly a lifetime of needing to care for and support said child if that injury occurs.  If something goes wrong during birth you are looking at an instant six-figure bill and the possibility of being financially ruined; if you already have a kid that event will wreck their life too.  Yes, the risk of injuries or worse is always part of having children and we all know that, but this is a thumb on the scale and a demand that you accept the risk of someone else screwing up and then abusing you financially because they can -- not because you did something stupid or accepted a reasonable cost for what was bad luck came your way.  Does that put a thumb on the scale when it comes to your decision to have the child in the first place?

Said child gets to be about six and its time for school.  You've been paying property taxes funding said schools all along except..... the kids in said schools are not managing to learn anything.  This isn't new, by the way -- in the 1990s more than eight out of ten who came to try to get a job at MCSNet, all holding High School diplomas or better, couldn't perform basic arithmetic with a paper and pencil nor write a simple basic English language business letter explaining that a customer had to pay their bill to restore their service.  I gave all applicants those two basic tests and kept all of them in a large file cabinet as it was the only reasonable way to guard against being unjustly accused of "discrimination."  What is the forward earnings capacity of an 18 year old who can't do both of those things -- other than gang-banging related criminal activity, of course.  Blame this on whatever you'd like but the facts are what they are, so your options are to suck it up and take the risk that your child fails to learn or you pay twice -- once in the property taxes and then again for private education.  Meanwhile your neighbor is a school teacher who gets paid and has a nice house to live in irrespective of the fact that you can't trust your kid to actually learn anything in that classroom and whether its because she can't kick out the three little monsters who like to throw chairs in class or that she herself can't make change for a $20 doesn't matter -- she gets paid anyway and so does everyone else who works there even though they repeatedly fail to teach anyone anything at all.

Then you think about the child getting older.  He or she is rather bright and would perhaps like a college education.  You see the bills pile up on those who are there now, and the growth of that price over the last 20 years.  You see $100,000 or more in debt larded up on someone who studies gender or black history and a "professor" who claims that capitalism is horrible -- while pulling down a six-figure salary and forcing your child to pay the next kid over's tuition in Calculus class because you, not your child, have more money than his parents do.  You think "oh, my kid is a math whiz and will study programming" which sounded great 20+ years ago but then you remember the many H1bs that multiple large firms brought in to replace all of their American citizen programmers, forcing said Americans to train their replacements before being fired in order to get any severance at all!  Thus that $100,000 taken on in debt to go to college, you realize, can be rendered worthless by said corporations even if your kid makes good choices as soon as someone from India will do the work for less money.  This wild escalation in the cost of an education is not by random luck either, which would be a risk everyone has to take -- three decades ago there was no Internet and colleges were the only real place you could learn a lot of things.  Today anyone can learn anything from literally anywhere with nothing more than a $50 cellphone, a $200 laptop and $50/month for Internet service so why has the cost of learning and proving it at a college level of competence gone up by five or more times in the last 30 or so years instead of costing almost nothing to simply take a set of proctored tests and prove competenceReality is that all of this is due to the deliberate policies and actions of universities, governments and corporations which will screw your child without any possibility of redress when he or she grows up -- and there is no evidence that it is slowing down or will be stopped.

You buy another box of Trojans.

You walk into the grocery store and see a single woman with four kids, no Dad, and she whips out her EBT card at the checkout.  She's got a nicer car than you do and she pays nothing for her residence, nor for her phone and Internet service -- all because she dropped four kids with no father she'll name.  Of course there is a father, probably a different one for each kid.  She gamed the system by using children as an ATM machine.  Even worse the kids are all obese and the cart is full of sugared soda and Doritos, all of which you are being taxed to pay for and she's probably on six prescription drugs which you're paying for too.  You contemplate that your skin is the wrong color to get away with that and you recognize that children are best-served by having two parents in the home but actually striving to provide the best possible environment for children to be born into and thrive means you won't get the EBT, free housing, free medical care or free phone and Internet service and in addition you have been forced to pay for her four births, all the economic tyranny imposed by your local hospital on society for each on top of everything else and thus you don't have the money to put extra groceries in your cart to reasonably feed even one child.

You buy two more boxes of Trojans and your girlfriend renews her birth control prescription just to be sure.

Never mind the sociological factors -- like the quality of the dating pool due to self-inflicted personal health damage that those on both sexes have inflicted on themselves.  In the extreme we have young people being encouraged to take drugs or undergo surgeries that are likely or even guaranteed to permanently destroy their fertility and adult sexual function, but it hardly beings or ends there; that's just an extreme example but one that we're all expected to support and acknowledge as "normal" and "good."  If you don't "affirm" someone ruining their capacity to ever have an ordinary adult sexual relationship even before they reach adulthood and thus can possibly contemplate what they're giving up (and produce children, I remind you), in many cases while forcing the costs on either their parents or society as a whole you're called a bigot.

Look back at the last three years and I'll give you just one tiny example I can personally cite.  On Halloween night in 2020 a neighborhood girl I'd seen around here, I would guess 10 years of age, came up trick-or-treating.  She had a mask in her hand and asked me (unmasked, handing out candy on the porch -- better than half the houses were dark with the people cowering in fear inside!) "Sir, you're not scared of me?"  I told her "Not in the least; my health is my business and, if it fails me that's my issue."  Her reply back to me?  "Its all bullshit."  Realize that she was being force-masked in school here in this county, in a "red state" and county that is so red you're wasting your time running as a Democrat, for nearly two years and the people who did it to her, six years from now when she reaches adulthood, will still not have lost a thing.  Some of those in higher office and thus in position to make policy for HER KIDS will likely have been the very teachers and school administrators who forced this ignobility on her; some of them even got commendations for bravery.  Will her knowledge of this and the screwing she personally took with such mandates by those very same people make her more or less-likely to have kids as an adult and will she assume that if she has children her kids are likely to get screwed in the same sort of way or even worse?

What could reverse that belief?  We might decide to hold those people who did all of that accountable by ejecting them from public office and any seat of power on a permanent basis -- or even jailing them and confiscating their assets along with passing iron-clad laws prohibiting anything of the sort with a private right of enforcement.  In other words we could give that formerly-screwed kid and now adult woman confidence her kids will not be screwed as she was without warning or cause.  We haven't and won't do any of that so there will be another generation of lower birth rates.  This outcome in another five or six years is our responsibility as the adults of today because we're not about to hold anyone accountable for those last three years!

Now add to this that there are two groups of politicians in "high office": Those who are geriatric and thus will be dead before the really bad outcomes from their policies occur and those who are narcissists and thus don't care if you and your kids get hosed as they believe they'll be immune from the bad effects even though they know you and yours won't.  If you think that's just a lawmaker thing you're dead wrong; my own father, who was a CPA and thus knew darn well what he was advocating and voting for and what it would mean, ran that crap on me during Thanksgiving one year while his grand-daughter was still at the age of crawling around on his living room carpet.  I was disgusted enough to get up from the table, gather our things, along with my kid, and immediately drove a few hours to get back home.

I could go on for hours with this but I think you get the point.  People don't choose to have fewer or no children because "that's how it is" as technology improves.  Technological improvement adds choice but society molds opinions and incentives -- for good or bad, like it or not.

People make the decision to not have children not because they're "selfish" but rather on an entirely-rational basis because they look back at their childhood for the baseline and then forward in time and what they see is not improvement but impoverishment, not prosperity but privation, forced compliance and costs shoved upon them while the mandating parties are immune from consequence even when they're later proved wrong or worse, someone is injured or killed, rampant illegal immigration and destruction of the common person's standard of living without boundary along with a documented history of forcing the voluntary costs taken by others down their throats along with myriad scams across the board.  When projected forward 20 years they recognize that any child they produce today is highly likely to be screwed blind and has a very low probability of having a good life, say much less a better one than they had.

Indeed if they judge that their childhood sucked they may well expect their kids' childhoods to suck worse and nobody who actually cares about a child they're contemplating bringing into the world voluntarily signs them up for that.

The people you want to bring children into the world are those who value children and have reason to believe their children will have at least as a good a life as they grew up with and enjoy now, with hope for even better, never mind a belief that their kids will have a fair shake and rational odds of success if they choose to apply themselves.

All of the policies of the last few decades of both government and industry have demonstrated beyond doubt that none of this is likely to be true and thus only those who don't give a wet crap about their children's future, or are so rich they believe they can guarantee it even if everyone else has their standard of living go straight to Hell, choose to reproduce.

Then there's the inescapable fact that a woman has a window for fertility that peaks in her late teens and early 20s.  By age 30 fertility is on the decline and by the time she's 35 that decline becomes precipitous; a woman who wants more than one child and is 35 is odds-off to be able to have both, and by 40 you may as well forget it entirely.  Leave aside the fact that most 55 year old people of either sex today can't possibly keep up with a teen, especially when they have an extra 100+lbs on their body and the risk of death due to said lifestyle choices before you can raise said child to adulthood begins to rise at an unacceptable rate as you pass your 50th birthday.  That, in turn, means that no, you can't wait another 5 or 10 years to fix this stuff because the women currently of child-bearing age won't be able to have children by then and if we don't cut the "healthy at any size" and "destroy your fertility on purpose by surgery or drugs" crazy nonsense today too many of those women who are of reproductive age at that point will be incapable of bearing children anyway.

That's why we're where we are, and if we don't stop it now in another 20 years it won't matter because for those who today are in their 40s and 50s, say much less older (many of the folks in my bracket will already be dead) there won't be anyone to pay the taxes that keep the government operating, there won't be any federal money for health care subsidization (e.g. Medicare) and there won't be anyone willing to wipe your butt when you can't do it anymore on your own.

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2019-07-27 07:00 by Karl Denninger
in Macro Factors , 429 references
[Comments enabled]  

This garbage is just flat-out ridiculous:

I earn my living investing other people’s money in the stock market. I am terrified contemplating how I am going to save my clients’ money, as well as my own, if a Democrat is elected president. The policies that the Democrats are advocating will destroy the American economy, not just the stock market, but the whole US economy. My first instinct will be to raise cash ahead of the stock market crash, but even that is only a temporary safe harbor.

The Green New Deal, renewed regulations, Medicare for All, free college,  as well as the 70-90% tax rates proposed by Democrats, will tank the stock market and US economic growth, leading to higher unemployment and reduced wage gains. All these programs require higher taxes and not just the soak the rich fantasy of the 70-90% rates. Most of the Democratic candidates have pledged to roll back the 2017 Republican tax cuts that fueled the renewal of economic growth in the US.

All of this is true.

But it's irrelevant.

As I've pointed out for more than a decade by 2024 CMS -- that's Medicare and Medicaid -- are incapable of the shenanigans that they use to suppress their budgetary deficit impact.  This is not rocket science, it's arithmetic, exactly as is the so-called "doom dates" on Social Security.

But Social Security's "doom dates" are in fact rather minor.  Being able to pay 80% of a promised benefit (that is, you're running a ~20% fiscal deficit which is consuming assets) is sort of ugly, but that's fixable.  Nobody's going to like a 20% tax increase on FICA (7.65% of wages up to the cap, plus another half you don't see) but raising the cap, increasing that tax by 20% or some combination that gets to the same place resolves the problem.

That's not catastrophic.  Nor, for most people, is a 20% reduction in payments, although the howling (and election losses) that result from the latter guarantees that won't be the outcome.  Those tax changes will and can be made and will not result in a collapse of the economy.

However, CMS is not running a 20% fiscal deficit; in their case roughly one dollar in five is covered, not four dollars in five!  When they run out of that stoked-back powder there are two choices, and only two choices:

1. Essentially default in its entirety on the promises made to Medicare recipients, both current and forward, forever.  This will simply cost-shift basically all of that onto Medicaid, particularly with regard to nursing home care once you bankrupt the vast majority of Medicare (retired) people, which will happen almost instantly.


2. Congress changes the law so as to permit CMS to run without backing, that is, the entirety of their operating deficit shows up on the federal budget as a fiscal deficit.

Social Security and Medicare are currently prohibited by law from doing #2.  Congress will have no choice but to permit #2 for at least Medicare, and since utterly nobody in the political or news space de-aggregates these two programs when talking about "fiscal cliffs" even though they have radically different exposures and funding problems the pressure to do it for both in the same bill will be overwhelming.

Not that it really matters; #2 will roughly double the federal deficit on an essentially immediate and permanent forward basis.

The "big lie" is this:

Whatever you think of President Trump, you know by his record that he will put America first and that his policies have created a robust economy. Unless you want to see the US economy and your standard of life destroyed, there is no alternative to voting for President Trump.

No, he has not.

The GDP data is here.

It shows a 4% gross GDP advance over the last 12 months (to Q2/2019.)

Debt to the penny shows a 3.91% fiscal deficit as percentage of GDP over the same period of time.

In other words there is no "robust economy" at all; it's a lie.

Actual GDP expansion in real terms over the last 12 months is 0.09%!

Statistically-speaking that's zero.

These are not my numbers and not my assertions; they're the government's figures and they're widely-regarded as facts.  Trump's most-recent "budget deal", which he is advocating for, has passed the House and will almost-certainly pass the Senate and be signed into law will remove all fiscal rectitude until the middle of 2021 by suspending the debt ceiling entirely.

Again, I remind you, by 2024 on current trajectories that roughly trillion dollar deficit ($828 billion on a rolling 12 month basis at present, and accelerating) will permanently double.

Yes, GDP will go up, since every dollar of that deficit will be immediately spent.  That's how borrowing works; you borrow money and you spend it, and as soon as you spend it GDP increases.  That's basic math and economics.

However, diluting the currency as a means of "goosing" GDP doesn't actually advance anything in terms of actual economic output.  Worse, productivity, if you believe the BLS, is "advancing" at 3.4% annually as of the last read.  This is, paradoxically, very negative in light of the fiscal deficit because "doing more with less", which is the definition of productivity, means that GDP should be running at least at that level on a fiscally-adjusted basis!

In other words if you include productivity, and for honest numbers you have to, the US is currently in a deep recession as it is in fact contracting real output on a roughly 3.3% annual rate.

How is this possible given "full employment" and the stock market soaring?

It's not hard to figure out; it's happening the same way you're "just fine" if you make $100,000 a year but continually add another $4,000 a year to your credit card balances.  That $4,000 is quite a lift in your standard of living.  It allows your family of four "another" week-long cruise per year, for example, or a very nice trip to Disney, or, for that matter, more than half of the monthly payments on a brand new $50,000 "loaded" pickup truck or Lexus.  Note that if every family did this GDP would increase at that same 4% since you're all spending 4% more than you make and the gross output will thus lift by that same 4%.  The (obvious, to anyone with more than two firing neurons in their brain) problem is that you're not really gaining any prosperity at all; in fact you're going backwards as you're accumulating an obligation that at least has an interest expense and at least in theory eventually must be paid off!

This illusion of "prosperity" can continue for a very long time -- so long as your credit card company doesn't call the loan, or even just shut off the spigot and deny any more charges. But even if just the latter happens not only does that $4,000 a year of "spending" disappear the interest payments do not disappear, and since you can't afford to pay down any of the principle those interest costs go on forevermore into the future.

Again -- as things stand right now we're consuming our capital base at a roughly 3% annual rate.  That depletion rate is set to double within the next five years.

I do not know when the markets will wrap their arms around this just like I don't know when you as a family would if you were running up your credit card on those Disney vacations.  But I do know that the day when it happens will come.  Not might, not could, will.

The willful and intentional denial of this fact by you, Greenwald, along with the others drum-beating for the flying-hair monster currently in office will simply make it worse when it does happen.  After all a market crash from DOW 27,000 to DOW 5,000 is very, very bad.  But one from DOW 35,000 to 5,000 is demonstrably worse because more and more people will believe that the so-called "value" in those assets is not only real but theirs to consume over the coming years when in fact it is not.  How many of those people have a half-million dollar "retirement fund" that is, in fact, really a $50,000 one?

What really galls me, however, is so-called "money managers" like the cited one in this quoted article, who believe that (1) this "prosperity" is real despite the data saying its not being literally in their face, (2) Trump is responsible for it and (3) voting for Democrats will be a disaster while not doing so will continue the "prosperity."

The root problem is that there is no prosperity in the first place; it's a chimera and fraud writ large and has been the case and policy of both parties since approximately 2000, when the accumulation of federal debt crossed the zero boundary and began resulting in negative contribution to GDP.

This is an exponential series.  Like all exponential series the negative impact starts slowly and thus the "belly" in the curve from the two lines on the chart for a while expands.  Yes, the top-line (debt) is accelerating but the imposed cost starts at a lower level and thus there's more "gap" between the two curves for a while.

But arithmetic tells us that exponents always behave exactly the same way.  That the appearing-safe "belly" will disappear, the gap will close and when it does you have a catastrophe because you can't cover the expense.  There is nothing you can do about it other than to halt the excessive spending and pay down the outstanding balance, but this requires not just halting the excessive spending (that is, cutting it to income levels) but going even further in order to pay off some of the outstanding balance.

At present the Federal Government is spending approximately 25% more than it takes in from all taxes combined.  To halt the detonation the spending cuts must therefore be more than 25% in total, now and forevermore into the future.  Everyone in DC has a wipe-out, toddler-style screamfest if you propose not spending more every single year yet the corrective action required is for one quarter of all money spent today be whacked off the budget.  That's how far down the rabbit hole we've gone, all without a single whimper of revolt or refusal to consent by the public at-large.

The mantra for the last 30+ years is that we're "leaving this mess to our kids and grand-kids", implying that we're saddling those who either cannot yet vote or worse, aren't yet born.  That was true 30 years ago,  It was probably true 20 years ago, as the generation just being born then would become adults about...... now.

But today it's no longer true.  We're not leaving anything to anyone.  The problem is here, it's ours, and we either stop it now or it will blow up in our faces.  Five years is a very short period of time to make fiscal adjustments and allow the economy to adjust and come back into balance.  Trying to eke out another 10, 20, or even 50% in stock prices over the next five years is not only unwise it's literally suicidal on a national basis and those advocating for same deserve to be held to account when, not if, their continued drum-beating for a fiscally, economically, politically, morally and ethically bankrupt position results in mortality.  One can only hope it's their progeny, spouses and then theirs personally, in that order first.  Sadly while I can hope and pray for them to be first it will not be only them no matter who goes first; the count of ordinary people who will be utterly destroyed and likely die is going to reach all the way from top to bottom with those at the bottom bearing the greatest percentage of losses.

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2018-07-05 07:00 by Karl Denninger
in Macro Factors , 319 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" bullshit, 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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