In this edition of fingers of instability we will be covering a wide range of subjects as the centrally planned socialist economies of the developed world continue to fail. These challenges to economic growth and market imbalances grow and grow because they can do so when supported by money printed out of thin air. Just today the new york times summed it up quite nicely:
"In the blink of an eye this week, they made the size of the American economy grow by $560 billion."
This is but the latest addition to PHANTOM growth to cover up gross mismanagement of the economy by Washington DC (District of Corruption). A few of the items of NEW growth created out of thin air include double counting of R&D spending which is ALREADY contained in final sales numbers, another is unfunded pension obligations are now called PAID wages. A report of growth is nothing but an apparition (ghost).
When socialists can't get the economy to grow they rely on doublespeak and newspeak for the masses. Look at an illustration of what the new phantom growth has done to the record books courtesy of Lance Roberts (www.streettalklive.com, I highly recommend this newsletter):
Notice how the new revisions just get bigger and bigger, just like Pinocchio's nose when he lies. But in REALITY represents NO NEW JOBS, NO NEW MONEY in Bank accounts or pensions to fuel growth. NO it is but another political cover-up of the moral and fiscal bankruptcy emitted from developed world capitals and their masters: Crony capitalists, special interest elites and banksters.
Suddenly with the stroke of a pen economic mismanagement becomes robust growth. It is designed to FOOL the dumbest among the masses. Socialism is defined as MISERY spread WIDELY as ALL are impoverished by the moral and fiscal INSOLVENCY it is.
Socialists operate in several ways as their policies gradually eat away the fabrics of wealth production of formally capitalist economies and push them into secular decline. First, as economies start to SHRINK public servants POLITICALLY direct demand through legislation to the crony capitalist special interests that control them.
Second they OUTLAW competition (thru regulation) which would destroy those Crony capitalist businesses which can no longer compete. Success becomes a function of access to the printing press first, control of the political process second and regulatory capture third. Described by Ayn Rand:
When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you...you may know that your society is doomed. -Ayn Rand - Atlas Shrugged
Nothing describes Europe and the United States more accurately and the public is well aware of it as trust in government and legislators in particular runs in the single digits. The public just has not distilled in their minds as Ayn so eloquently does.
A Corrupt set of SOCIALIST, CORPORATE and BANKING elites are in complete control on both sides of the pond. Thus Crony capitalists, governments and elites can thrive although they are constantly giving their customers LESS GOODS and SERVICES for more money.
That is the definition of crony capitalism and socialism. It manifests itself as a decline in living standards as inflation and less for more impoverishes the middle classes and creates something for nothing societies as their policies destroy REAL growth. Creating desperate middles classes as their futures are SQUANDERED by the people they have placed their trust in.
In order to maintain lifestyles and offset the constant debasement of the money they are paid and store their wealth in the public must borrow from the banks to maintain their lifestyles and become debt slaves to those preying on them: banksters, crony capitalists and big government socialists. All are bent on redistributing private wealth to themselves in one manner or another. This is a recipe for the death of the middle classes we see today, as the money printing rolls on the descent of living standards and desperation accelerates.
Contrary to popular belief WEALTH cannot be printed out of thin air but debt can be. When they print the money to buy a treasury security you can rest assured the bill for it is sent back to you through the national debt and must be repaid. If you are a US taxpayer your share of the funded and unfunded obligations of the US government is over $1,000,000 dollars.
Wealth can only be created by growing it, manufacturing and providing services for it, mining it, hard work, taking risk and being rewarded for it, etc. All these activities must produce more than they consume, or FAIL and succumb to those that do. It's called productivity and is essential to rising living standards.
In capitalist economies wealth is created by the virtue of providing more goods and services for less money to consumers and being rewarded for it. The consumer gets more of everything for him and his family, the worker gets job security, advancement opportunities and works for a growing firm, the investor gets ownership of a prosperous enterprise.
This makes sure that working capital is ALWAYS used in the most effective and productivity enhancing manner. It is the key to RISING living standards alongside SOUND money. The only group that loses is the uncompetitive competitors who cannot provide goods and services at more affordable prices.
In the Eurozone UNEMPLOYMENT is at MULTI DECADE HIGHS (except Germany) as Sclerotic employment laws have frozen the next generation OFF the first rung on the LADDER to success as trade unions and socialists have created laws which PROHIBIT competition for JOBS.
There is a coming off with their heads moment for the European commission and corrupt/incompetent quasi socialist leaders throughout the Eurozone LOOMING, courtesy of the disenfranchised publics. Beppo Grillo is just the tip of the spear!
Repeal the corrupt labor laws and unit labor cost and PROBLEMS throughout the EUROZONE would quickly recede, youth unemployment and unemployment in general would plummet. Tenured 'do- nothings' would produce or lose their jobs and the Eurozone workforces would QUICKLY get more productive (create more wealth).
Societal CHAOS looms as young adults have been EXCLUDED from the jobs markets as economies do not grow and entrenched special interests have pulled up the job ladder behind them.
In the United States, the Jobless figures are unreliable and have become politically correct rather than ACCURATE reflections of the job market (www.shadowstats.com):
They report the red line to you while in reality the blue line real number has continued higher since 2008. Just like every US and EUROZONE government statistic the jobs numbers are a politically correct cover-up. In reality, after taking out this DISTORTION unemployment is HIGHER than it was at the bottom of the Global financial crisis in 2008-2009.
The US deficit which averaged approximately 2.5% of gdp before 2008, EXPLODED to average 6-8% of GDP. This created the basis of the unfolding financial collapse of the FEDERAL, and many STATE and municipal governments.
Take a look at the most recent JAWS of DEATH illustrating the EVER WIDENING spending versus revenues. The difference is just borrowed and the BILL sent to our children or inflated away (subtracted from the purchasing power of your money) with the Federal Reserve's printing press:
Think of this chart as the FLASH of an ATOMIC bomb in the distance. Picture the destruction racing through the currency and financial systems you are paid and store your wealth in as they PRINT the money to FILL the DEFICIT'S in bankrupt governments and insolvencies in the financial systems.
This is the JAWS of DEATH for the US DOLLAR and ultimately the global financial system as U.S. DEBT is the approximately 60 to 70% of central banks reserves of every country in the world! When they go to down so do the values of reserves backing every currency on the WORLD!
This DEFICIT picture can be SEEN in every MAJOR economy in the world as governments/citizens attempt to live beyond their means as they have done for over 5 DECADES. The size of the insolvency is COMPOUNDING on itself at approximately 8% a year or 40% if you use GAAP (generally accepted account principles).
Take a look at the U.S. government's DEFICIT if it was computed according to generally accepted account principals (GAAP) courtesy of www.shadowstats.com:
$90 trillion dollars of UNPAYABLE and INEXTINGUISHABLE debt and future obligations, US BONDS and DOLLARS (Bonds in Disguise) ARE JUNK BONDS but the financial system and government regulators calls them RISK FREE! (This is YOUR opportunity. You must learn to take advantage of this rather than be a victim of it). I can hear the keystrokes and printing presses starting up now!
Look at the chart on the right, if a business MISREPORTED its deficits like that it would be dissolved and the management PUT IN JAIL. The management of this situation is Washington DC (District of Corruption).
The gap between the reported deficit and the unreported GAAP number ranges from 200 to 500% in every year in the last 12. The EUROZONE is in the SAME BOAT as you can see:
The officially reported U.S. deficit averages $1.3 (actually up to $7 Trillion using GAAP) trillion dollars a year and the US and EUROZONE governments must fund these present and future liabilities. DO YOU BELIEVE IN THE TOOTH FAIRY and SANTA CLAUS? The main stream media, politicians, investors and financial system are operating in willful blindness and it is criminal negligence.
Using the rule of 72 the US insolvency is doubling every 9 years. Using GAAP accounting the US deficit is $6.6 trillion (US treasury figure) in 2013 or 42% of GDP.
These numbers do not include trade deficits. The balance sheet of the United States ECONOMY and government is in FREEFALL. To fill the HOLE, they have and will PRINT IT!
The reason government spending cannot be cut is it is counted as growth in GDP. Look at how the governments of the world CONSUME their constituents (aka the private sector) and economies:
Those are bubbles in government spending; no different than any market bubble and they are in the process of POPPING. Cut this excess and GDP numbers will contract dollar for dollar, making cutting government POLITICALLY impossible! This is why the sequester is a disaster for Washington DC, because every dollar they cut is one less dollar of government waste and consumption masquerading as GDP.
This is obscene and the numbers have only GROWN since these numbers were compiled in 2009. Government spending is not GROWTH, job creation or INVESTMENT; it is consumption and CAPITAL destruction. Now and in the future when the DEBT/deficits becomes DUE!
The money Social welfare states spend must be TAKEN from others (productive businesses or individuals) in one way or another. These numbers are understated by as much as 20% due to the fact that state and municipal spending and exploding new fees are not shown.
Take a look at LEVIATHAN government being born in the US since Bretton woods II released the scourge of UNSOUND money backed by NOTHING:
This BUBBLE will pop someday as REAL economic activity plummets and the printing press CEASELESSLY substitutes for the REVENUE shortfalls. If you properly adjust the numbers for REAL INFLATION the household incomes HAVE NOT GROWN in 53 years.
Approximately 70% of this spending total goes to those DEPENDANT on government in one way or another (Medicare, Medicaid, social security, government suppliers, subsidies to business, education establishment, military industrial complex, etc.).
"It is not an endlessly expanding list of rights -- the "right" to an education; the "right" to health care; the "right" to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery - hay and a barn for human cattle." ~ Alexis de Tocqueville
The primary GOAL of the SOCIALIST federal government in Washington D.C. (district of corruption) has been to increase GOVERNMENT dependence and control over the economy. This is how public servants and socialists GATHER POWER!
It can happen through food stamps (almost doubling in 4 years), social security disability, regulatory favors, and government subsidies to business or individuals.
Crony capitalists (BIG CORPORATIONS) in league with MORALLY and FISCALLY challenged politicians have devised ways to avoid the taxes and destroy new competitors through NEW regulations to SAVE/protect YOU.
Look at the high cost of regulations on the price of hiring an employee and the edge big business has over entrepreneurs and startups:
See how the government has TIPPED the scales of costs in favor of the crony capitalists. Wait till you see this after OBAMACARE, costs will explode higher for the small businessmen.
Think of the workers who are having their working hours cut by 25% from 40 hours to fewer than 30, and then being FORCED to by health care AFTER the income decline. They and their families are entering a time of government created misery. This is a 25% REDUCTION in income and huge new costs absorbing another 10% or more of what's left.
Here is a picture of the POLITICAL corruption being put in place in Washington DC (District of Corruption);
This is the face of economic sclerosis. It is political allocation of demand and control being put in place as public serpents, err servants, regulate demand and business to their special interest supporters as capitalism FAILS under the central planners deadly socialist embrace.
This is the face of Competition, Innovation, Productivity and more goods and services for less money aka capitalism being PROHIBITED by LAW!
Look how government has morphed from your servant to your master since Breton Woods II 1971.
UP 500% since the 1970's
Notice how these totals exploded after Bretton woods II destroyed the semi sound money we had previous to August 15, 1971. This is the destruction of CAPITALISM, creative destruction and more for less of everything you use. It has been OUTLAWED replaced by politically regulated demand to crony capitalists who loath competition!
"A government can't control the economy without controlling people. And they know when a government sets out to do that; it must use force and coercion to achieve its purpose. They also knew, those Founding Fathers, that outside of its legitimate functions, government does nothing as well or as economically as the private sector of the economy." - Ronald Reagan
Those pages take money out of the economy, put it into a straightjacket and it represents UNSEEN government spending as it has RISEN to 15% of GDP (and growing at 10 to 20% per year) which is CONSUMED indirectly complying with REGULATIONS (state, municipal and federal).
How much do runaway regulations cost to the economy?
And what does it cost you in lower wages?
And not much is left as a REWARD for productive wealth creation in the private sector. The bill for health care is about to EXPLODE.
Keep in mind that public servants have exempted themselves from most of these laws and regulations while criminalizing the public in many ways. Government has exploded in size from 5-10 to 55% or more of GDP today. This was NIXON'S greatest CRIME: Bretton woods II!
In the United States regulation is called a UNIFIED AGENDA, which is the WASHINGTON weasel word for CENTRAL PLANNING.
As leviathan GOVERNMENT has GROWN a secular BEAR market (33 years and counting) in annual economic activity has UNFOLDED as central planning, runaway regulations and socialism (misery spread widely) HAS CRIPPLED the US economy:
Borrowing for government spending/consumption BALLOONS the cost as compounding means you pay multiples of the original spending amounts. Government deficit spending is not self-liquidating as no income comes from the spending. The debt, runaway government growth and regulations are cancer cells planted into the respective economies which will always GROW until it collapses the economy, financial systems and currencies!
In closing, the insanity just grows and grows and when it will stop nobody knows. We do know one thing... It will stop, that is what the Global financial crisis is. It is Mother Nature saying NO MAS and is how empires throughout history have fallen to their demise.
There is no amount of money and credit creation which can overcome the moral and fiscal bankruptcy being put in place by developed world governments. The only it can do is POSTPONE IT and MAKE the BUST bigger when it does overwhelm the socialists and it will. The question is not: Will occur? It is: When will it occur?
The second great depression is dead ahead and what will be the trigger (Black Swan) of it is the subject of the Fingers of Instability series you are reading now. We are looking for a spike negative like we saw in the 1930's and it is on the horizon.
Combining government spending and the cost of regulations translates to very little left for the private sector (those not on the government GRAVY trains). Cannibalism of the worst sort is the order of the day as those that don't produce eat those that do. In the process, killing the golden goose represented by the private sector.
This is what progressive governments strive for: take from the productive and transfer it to their constituents at the point of a government gun. In the time it has taken you to read this 10's of millions of new dollars have been printed and the bill for it sent to you and your children WITH INTEREST.
Do you think that is moral?
Author's note: In my opinion, this is NOT Doom and Gloom, it is one of the greatest opportunities in HISTORY. Invest properly for this outcome and Prosper, invest looking in the REARVIEW mirror and your wealth will be irreparably DAMAGED. Volatility is opportunity for the prepared investor. As it is price in and markets ZOOM higher or LOWER to price in collapsing economies and money printing huge opportunities are created. Is your portfolio structured to survive? The greatest transfer of wealth from those that hold it in paper and financial assets to those that don't is UNDERWAY. Restoring fiat currencies to sound money and absolute return alternative investments with the potential to thrive in all market (up, down and sideways) conditions is what I do. If you have an interest in learning more and working with TY: CLICK HERE
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