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Economic Outlook

How Long Can The Great Global Reflation Continue?

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Posted by Charles Hugh Smith - Of Two Minds

on Wednesday, 24 May 2017 08:32

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And what will happen when it ends?

Every now and again, it’s good to take stock of the Great Global Reflation that has been marching higher (with a few stumbles and scares) since early 2009, over eight years ago.  

Is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?

Keynesianism Vs The Real World

Let’s start by reviewing the systemic contexts of the economy.

This Great Reflation is embedded in two basic contexts:

  1. The dominant socio-economic structures since around 1500 AD are profit-maximizing capital (“the market”) and nation-states (“the government”).
     
  2. The dominant economic theory for the past 80 years is Keynesianism, i.e. the notion that the state and central bank must aggressively manage private-sector consumption (demand) and lending via centrally planned and funded fiscal and monetary stimulus during downturns (recessions/depressions).

Simply put, the conventional view holds that there are two (and only two) solutions for whatever ails the economy: the market (profit-maximizing capital) or the government (nation-states and their central banks). Proponents of each blame all economic and social ills on the other one.

In the real world, the vast majority of Earth’s inhabitants operate in economies with both market and state-controlled dynamics in varying degrees.

The Keynesian world-view is doggedly simplistic.  The economy is based on aggregate demand for more goods and services.  People want more stuff and services, and as long as they have the means to buy more stuff and services, they will avidly do so (this urge is known as animal spirits).

The greatest single invention of all time in the Keynesian universe is credit, because credit enables people to borrow from their future earnings to consume more in the present. Credit thus expands aggregate demand for more goods and services, which is the whole purpose of existence in this world-view: buy more stuff.

But credit, aggregate demand for more stuff and animal spirits make for a volatile cocktail.  The euphoria of those making scads of profit lending money to those euphorically buying more stuff with credit leads to standards of financial prudence being loosened.  In effect, lenders and borrowers start seeing opportunities for profit and more consumption through the distorted lens of vodka goggles.

Lenders reckon that even marginal borrowers will earn more in the future and therefore are good credit risks, and borrowers reckon they’ll make more in the future (i.e. the house they just bought to flip will greatly increase their wealth), and so borrowing enormous sums is really an excellent idea—why not make more money/enjoy life more now?

But the real world isn’t actually changed by vodka goggles, and so marginal borrowers default on the loans they should never have been issued, and lenders start losing scads of money as the value of the collateral supporting the defaulted loans (used cars, swampland, McMansions, etc.) falls.

....continue reading HERE



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Economic Outlook

WannaCry and the War Cycles

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Posted by David Dutkewych - Edelson Institute

on Friday, 19 May 2017 00:45

Here at the Edelson Institute, we follow the war cycles very closely: Larry’s research shows that the cycles of war and conflict continue to ramp up. And that this escalation will not peak until the year 2020.

A huge part of the war cycles is cyber-warfare. And we are witnessing just the beginning.

Case-in-point: The lingering ransomware attack that began in Europe last Friday and continues hitting new targets in Japan and China this week.

The WannaCry software has locked thousands of computers in more than 150 countries. This ransomware attack, which hit 370,000 computers, stands far and away as the most severe malware attack so far in 2017.

The spread of this troubling ransomware is far from over. There are reports that link this attack to North Korea. If confirmed, it will add to the growing tensions between the U.S. and North Korea.

This is on top of other massive cyber-wars between countries, of which the Russian hacking of the U.S. elections is just the most recent in a firestorm of examples. We also see cyber-espionage by governments against each other and against their own people.

A disruptive cyber-attack on critical infrastructure in the United States (e.g., telecommunications, electrical power grids, gas and oil reserves, water supplies, financial institutions, and transportation and emergency services) would be extremely harmful … and costly.

Screen Shot 2017-05-19 at 12.17.14 AMIn fact, Cybersecurity Ventures – which tracks and analyzes trends in cyber-misconduct – predicts the annual global costs of cyber-crime will balloon from $3 trillion in 2015 to $6 trillion by 2021.

You read that right: $6 trillion by 2021!

The $6 trillion includes the damage and destruction of data, plus stolen money and lost productivity. And don’t forget about the theft of intellectual property, personal and financial data, embezzlement, fraud, and post-attack disruption to the normal course of business … all of which adds up to huge sums of money to restore and replace.

That’s a staggering list of damages and a heck of an outlay of cash.

Bur, frankly, I’m not one bit surprised.

As the war cycles ramp up, cash-strapped, over-indebted nations are going to be forced to spend more money than ever on national security. And cyber-protection is just part of that equation.



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Economic Outlook

When Robots Take All of Our Jobs, Remember the Luddites

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Posted by John Mauldin - Outside the Boxn - Outside The Box

on Thursday, 04 May 2017 08:22

rise-of-the-robots-viIf you don’t think the transformation we’re embarked upon is a profound one, consider this: Within two decades, half the jobs in this country may be performed by robots. What then of our unemployment rate and social safety net? Opinion is divided: Will the next technological wave further skew the wealth distribution toward the uber-rich, or will it ultimately create more entrepreneurial and job opportunities than it destroys?

There is an interesting historical precedent for our situation, an era during which the technological firmament shifted just as abruptly as it is here and now. In the United Kingdom in the year 1800, the textile industry dominated economic life, particularly in Northern England and Scotland. Cotton-spinners, weavers (mostly of stockings), and croppers (who trimmed large sheets of woven wool) worked from home, were well compensated, and enjoyed ample leisure time.

Ten years later, that had all changed. Clive Thompson, the author of today’s Outside the Box,tells us what happened:



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Economic Outlook

Damn the Deficits, Huge Tax Cuts Ahead!

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Posted by Peter Schiff - Euro Pacific Capital

on Wednesday, 03 May 2017 06:41

640x-1Donald Trump has made good on one of his most audacious campaign promises by submitting what he describes as the biggest tax cut in U.S. History. For once, at least, this does not appear to be Trumpian braggadocio. It really may be the mother of all tax cuts. But if passed, what may this bunker buster do to the economy? While I have rarely met a tax cut I didn’t like, this one just may be more likely to send the economy into a downward spiral than it is to send up to orbit.
 
As I mentioned in my January commentary, Donald Trump’s big-spending, tax-cutting campaign rhetoric threatened to make him the biggest borrower in presidential history. He comes to office at a particularly vulnerable time for budget dynamics. After contracting by nearly two thirds from 2010 to 2015 (from the mind-bending $1.3 trillion to the merely enormous $438 billion), the Federal deficit started expanding again in 2016, moving up to $587 billion (Govt. Publishing Office, Office of Management & Budget (OMB). Current projections have it going up nearly every year over the next two decades. The Congressional Budget Office expects it to permanently surpass $1 trillion annually by 2021 or 2022. But these ominous forecasts were made well before anyone thought Trump had a snowball’s chance of ever becoming president. Now that he is in the office, those projections will be the floor. The ceiling is anyone’s guess.


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Economic Outlook

Why We’re Ungovernable, Part 17: Europe Gets Its Doomsday Scenario

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Posted by John Rubino - DollarCollapse.com

on Thursday, 20 April 2017 06:32

The rise of French far-right presidential candidate Marine Le Pen has made a lot of people nervous since, among many other things, she’s in favor of leaving the eurozone, which would pretty much end the common currency. But since polling has shown her making the two-person run-off round but then losing to a mainstream candidate, the euro-elites haven’t seen any reason to panic. 

Here, for instance, is a chart based on February polling that shows Le Pen getting the most votes in the first round, but then – when mainstream voters coalesce around her opponent – losing by around 60% – 40%. The establishment gets a bit of a scare but remains firmly in power, no harm no foul.

French-poll-Feb-17

 

Then came the past month’s debates in which a previously-overlooked communist candidate named Jean-Luc Mélenchon shook up the major candidates by pointing out how corrupt they all are. Voters liked what they heard and a significant number of them shifted his way. 

Mélenchon: Far-leftist surges in French polls, shocking the frontrunners



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Economic Outlook

When Will They Ever Learn?

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Posted by Gary Christenson - The Deviant InvestorInvestor

on Wednesday, 19 April 2017 06:15

dc77ca8b5fb31cb41cd2bbb1145244e8Afghanistan, Iraq, Syria, Iran, North Korea, Russia, China ……..

In the 1960s Peter, Paul and Mary popularized a song written by Pete Seeger – “Where Have All the Flowers Gone?

The short version is:

Where have all the flowers gone?

Young girls have picked them.

Where have all the young girls gone?

Gone to husbands.

Where have all the husbands gone?

Gone for soldiers.

Where have all the soldiers gone?

Gone to graveyards.

Where have all the graveyards gone?

Gone to flowers.

And repeat. 

When will they ever learn?

Another version of this “cycle of life” is:

Where has all the money gone?



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Economic Outlook

March Jobs Report: 98K New Jobs Added, Worst in Almost a Year

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Posted by Jill Mislinski - Advisor Perspectives

on Friday, 07 April 2017 07:25

This morning's employment report for March showed a 98K increase in total nonfarm payrolls. The unemployment rate ticked downward from 4.7% to 4.5%. The Investing.com consensus was for 180K new jobs and the unemployment rate to remain at 4.7%. January and February nonfarm payrolls were revised downward for a total loss of 38K.

Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

The unemployment rate declined to 4.5 percent in March, and total nonfarm payroll employment edged up by 98,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services and in mining, while retail trade lost jobs.

Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. We've added a 12-month moving average to highlight the long-term trend.

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...continue reading this analysis complete with 8 more charts

...related: 

Recession Alert Weekly Leading Index Update



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