PDA

View Full Version : Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen



EJ
04-22-11, 08:23 PM
http://www.itulip.com/images2/TaiwanGoldBar220KG.jpg
220 kilogram (485 pounds) gold bar, Jinguashi Gold Ecological Park, Taipei County, Taiwan, April 2011
Reached an all time peak value of $11.64 million on April 21, 2011
Photo Credit: Eric Janszen


Global Monetary Meltdown - Part I: The accident that won't wait to happen

The Fukushima Daiichi nuclear facility helped meet Japan's need for cheap electrical energy when it was completed in 1971. The US Treasury bond-backed dollar met the world's need for a monetary anchor after the US shut the gold window the same year, bringing the international gold standard to an unceremonious and untimely end. In both cases safety was forsaken for political expediency. Both were accidents waiting to happen. One just did, and the other could happen at any time.

• The Fukushima Daiichi of monetary systems
• Not even a "service economy"
• Cold War II

"Gold is the enemy!"
- Paul Volcker (replying angrily to a question about the role of gold in monetary reform at a conference in October 2010)

"My efforts to prevent closing of the gold window--working through Connally, Volcker, and Shultz--do not seem to have succeeded. The gold window may have to be closed tomorrow because we now have a government that is incapable, not only of constructive leadership, but of any action at all. What a tragedy for mankind!"
- Arthur Burns, Federal Reserve Chairman, Aug. 12, 1971, The Secret Diary of Arthur Burns

What should we make of our precessing world? From my recent travels to Asia, Europe, and across US, and from conversations with contacts around the world, the picture is at once promising and terrifying. Thus begins a long series I've titled "Global Monetary Meltdown." This is Part I of N, the first of an indeterminate many, that tracks the progression of processes that I started to explain here since 1998, as we get down to the short strokes in the final years.

The end cannot be but two years off at most. Our outmoded US-centric monetary system and debt financed FIRE Economy are disintegrating under the weight of inflation taxes that are a consequence of private sector debt bailouts, the moving of private debt to public account, and a rigidly distorted energy infrastructure that depends on cheap oil. The final stages, that we hedged with gold bought in 2001 at $265 per ounce, are upon us.

At times I will post to this series frequently as events unfold fast and furious, when the system shakes and staggers to make headlines as it did in 2000 and again in 2008 and 2009, and less often when the underlying channels of transition shift below the surface, as the evolving monetary crisis escalates and de-escalates, but always tending toward dissolution. There is a time for analysis and reflection and another from expression. My posts shall match the cadence of global monetary entropy.

- Eric Janszen, April 2011

CI: You were in Hong Kong, Taiwan, Japan, and California, and before that you gave the keynote address to a group of power utility CEOs in Phoenix, Arizona, including several who run nuclear power plants. Before that you were in Connecticut to give the keynote to the largest and oldest international commercial real estate association. We got lots of catching up to do. Where do we start?
EJ: With our theme, the Fukushima Daiichi nuclear plant disaster and its analog, the global monetary system.

CI: Why go to that part of the world then?
EJ: The trip was planned well before the earthquake, tsunami, and nuke plant disasters. If I thought I was at risk, I’d have canceled. By coincidence, I gave a keynote the week before at the American Public Power Association conference just as the nuke plant crisis was starting. I could easily tell which of the CEOs in the audience, of the 80 utilities represented there, ran nuclear plants. There were the ones running out of the room every ten minutes to talk to the press and hold conference calls with their colleagues in Japan. The first week was a nightmare, but after that I went ahead with the trip. That said, I’m not eating Japanese sushi just yet.

CI: Did you see a cover-up from the start?
EJ: When the Fukushima Daiichi nuclear plant disaster started, the day I gave my speech, you could see the global nuclear industry circling the wagons, as they do whenever a disaster occurs. Information on the true extent of the crisis has been keep within confidential industry circles and still is. Only via forensics by independent parties has the public received information describing a reasonable approximation of actual events in real time. It’s basically the same problem we had getting accurate reports on the condition of financial institutions and banks before and during the financial crisis. Partly the under-reporting of the crisis at Fukushima Daiichi was legitimate, to limit public hysteria that would have complicated emergency response efforts to prevent a truly apocalyptic disaster, and partly to limit damage to the reputation of the nuclear power industry. I got inside that circle briefly when the danger was still critical, but the information I have is dated now that the most critical phase of the crisis has passed, although huge issues remain. I shared then what I could at the time behind the pay wall and not in public, as much as I could without violating the confidence of my sources.

CI: When did you speak?
EJ: On the morning of March 13. The news that morning was about the hydrogen explosion in Reactor Building #1. It was generally reported this way.
Tokyo Electric Power Co. said an explosion near the No. 1 reactor at its Fukushima Dai-Ichi nuclear power station destroyed the walls of the reactor building and injured four people. A hydrogen leak caused the blast, which didn’t damage the steel chamber, Chief Cabinet Secretary Yukio Edano said.

Radiation levels in the area dropped after the blast and have “now settled at a low level,” Edano said at a briefing in Tokyo today. Asia’s biggest utility “has decided to fill the containment with seawater.”

The reactor at the Fukushima Dai-Ichi plant may remain shut for a year, Seth Grae, chief executive officer of Lightbridge Corp., a nuclear energy consulting firm whose staff previously inspected the Fukushima plant, said March 11 in an interview with Pimm Fox on Bloomberg Television’s “Taking Stock.”
Makes it sound like the walls came off in a controlled fashion, that a small, temporary leak occurred, and that everything was under control. In fact, the hydrogen leak was caused by the water boiling out of the spent fuel pool in the plant due to the failure of the coolant circulating systems, as the zirconium cladding on the fuel rods reacted to the heat by drawing oxygen from the remaining water, letting off hydrogen. By the way, besides cladding fissionable material in nuke plants, the only other commercial use for zirconium is flashbulbs used in photography. Heat it up to 2000 degrees and it explodes violently. Could have happened but didn’t. Instead, heated zirconium in water filled the plant with hydrogen gas and a spark ignited it. Here’s was the result, taken by an unmanned drone flight (hat tip to iTuliper Don).


http://www.itulip.com/images2/fukushimaDrone.png

CI: The scene is 100 times worse than the press reports implied.
EJ: Meanwhile, seventy percent of Reactor #1’s fuel rods melted to the bottom of the containment vessel, and more than 30% of #3's. This was later reported in the New York Times briefly – the assertion was deleted from a later version of the story. But it’s the fact, and the information is now in the public domain. At the time, it wasn't. There is evidence that Reactor #1 continues to go critical off and on as they pump ocean water into it and it boils off and they pump more in, as Arnold Gunderson reported (http://vimeo.com/21881702). Now they continue to to deal with the buildup of hydrogen gas in the reactor. If it ignites and the vessel blows up, then they’re back to the worst-case scenario that they’ve been trying to avoid since the start. They claim that there’s not enough of a concentration of hydrogen or enough gas space in the primary confinement vessel for it to blow it up, but as nearly everything else that’s been initially reported has turned out to be untrue, I wouldn’t bet my life on it.


http://www.itulip.com/images2/NaritaVIPMarch2011.jpg
Empty VIP lounge at Narita Airport, Tokyo, Japan, March 26, 2011
Source: Eric Janszen

CI: Why didn't TEPCO give the plant the Chernobyl treatment? Bury the reactors in boron and concrete?
EJ: To the best of my understanding, as it was explained to me, that's putting the cart before the horse. Encasing four of the six reactors in boron and concrete is what you do after you’ve failed to achieve containment of fissionable material in the primary reactor vessels and material has escaped into the environment. The fear was that if they stopped the project to cool and contain radioactive material in the reactors and switched over to a project to dump boron and concrete, a process that might take several days at least, there was a good chance that in the interim, while they were conducting that operation, a full meltdown and release of material would occur in one or more of the reactors.

CI: So they averted a Chernobyl?
EJ: The risk in the first few days was for a catastrophe far, far worse than a Chernobyl.

CI: Worse than Chernobyl?
EJ: There are 4,277 metric tons of fuel at the plant, 3,400 tons in seven spent fuel pools plus 877 tons of active fuel in the cores of the reactors. There were only 180 tons of material in total at Chernobyl. Failure to contain the material at Fukushima Daiichi meant the possibility existed for the equivalent of five or eight Chernobyls, rendering a major part of Japan uninhabitable. All of this will all come out in time, just how desperate and high stakes the battle was. Look for a Frontline piece on it some day, maybe. It was a suicide mission for the 50 workers who stayed on during the critical phase of the first week of the crisis. My understanding is that they were told, “If you fail, your country will be destroyed.” Sadly, it is expected that many of those 50, who spent days getting bombarded with gamma radiation and neutrons, may become ill if they aren’t already.

Two dangers faced the reactors for the first week after the crisis and still to some extent face Reactor #1. The first was that the fuel that melted to the bottom of a steel reactor vessel could burn its way through the steel and concrete containments, polluting not only a large area of Japan as in the case of Chernobyl but, due to the fact that the Fukushima Daiichi plants are beside the ocean, also spreading vast quantities of Cesium 137 and other long half-life, water soluble radio isotopes around the world. The other potential risk was that if enough melted fuel accumulated at the bottom of one or more reactor vessels, it could reach critical mass, resulting in a chain reaction, leading to a violent steam explosion and ejection of radioactive materials out of the reactor. They’d have to abandon the site, leading potentially to follow-on meltdowns at one or more of the other five reactors as they over-heated in turn. As long as they were able to keep injecting water into the reactors to keep the fuel sufficiently cooled, these outcomes could be avoided and the risk of a multi-Chernoby scenario would subside over time, and for all but one or possibly two reactors, it has. At the same time, they were struggling to prevent criticality in the spent fuel storage pools. They had to maintain access to the reactors to get boron and water into them. They could not encase them. They had no choice. It was do or die.


http://www.itulip.com/images2/JapanAirMarch2011.jpg
Flying over southern Japan, March 26, 2011
Source: Eric Janszen

CI: Fukushima Daiichi is old news this week. They announced it'll take six or nine months to get it cooled down.
EJ: The media cycle rarely coincides with the natural periodicity of the events the media covers. The US media, dependent as it is on advertising revenue, is particularly bad at covering long, drawn out events that occur over many years, such as the dissolution of the global monetary system, a process that's been going on since the early 2000s. The financial media is so disoriented that it covers the possibility of a dollar decommissioning process as if it might or might not begin some time off in the future, when in fact it's been happening for more than a decade, evolving from one stage to another. Complex and nuanced economic, political, and market processes that escalate and de-escalate for years won't receive much coverage after the acute crisis phase ends that draws in an excited and curious audience that causes a spike in ad revenue. In the case of Egypt, for example, the media only got to cover the beginning, the thrilling and promising part of what is likely to be 12 part saga that will involve a pitched battle between the incumbent military junta and the Muslim Brotherhood, with Iran and China backing one side and the US and its allies the other, with the people as usual caught in the middle.

CI: Where is this going?
EJ: The entire region, including the terribly repressive and critically important US military allies in Syria, are being draw into a process of political change that is evolving into proxy wars. My view is that without strong and creative US leadership now, the Arab revolutions are quickly morphing into a new cold war between China and its allies and the US and its allies.

CI: New cold war?
EJ: I call it Cold War II. The US will find China a far more formidable proxy war adversary than the Soviet Union ever was. Totalitarian state finance capitalism combined with mercantilism is infinitely more productive than communism ever was. Throw in China's dollar destroying debt leverage over the US, and you have a prescription for an eventual monetary crisis (see: Economic MAD, 2006 (http://www.itulip.com/economicMAD.htm)). A less well developed form of a the same economic system financed a lunatic racist and militarist Nazi regime so successfully in the 1930s that it was able to challenge the entire rest of the world in productivity and war, and that was only a few years after the German economy was ruined by war and hyperinflation, followed by the sudden withdraw of US and British foreign direct investment in 1930 that crashed the Germany economy anew. The rise of the right in Finland and across Europe today is being accelerated by divisions of an escalating sovereign debt crisis.

CI: You are a proponent of nuclear power. You push it in your book The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=1591842638)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=1591842638.
EJ: I do. I’m in favor of safe, next generation nuclear power plants, based on pebble bed nuclear plant designs, and in the interim before they are available, small light water reactors that are well dispersed, not several large reactors and concentrated in one plant.

CI: Pebble bed nukes?
EJ: There are no control systems to control the nuclear reaction in pebble bed designs. There are no control systems to fail. The fission reaction cannot go critical. Many of these old plants are insane.

CI: Insane?
EJ: Put 200 metric tons of highly poisonous radioactive material in a giant steel and concrete jar and control the nuclear reaction with control rods and cooling systems. If the controls and cooling systems fail and the material escapes, a huge area around the plant will be rendered uninhabitable for a century. Now keep several hundred tons of spent fuel on the premises, also vulnerable to an uncontrolled reaction. Now put six such reactors all at the same location. Now put them in a highly seismically unstable area next to the ocean that is famously vulnerable to severe tsunamis. Does that sound sane to you?

CI: How do insane decisions to build things like this get made?
EJ: That’s the key question, isn't it? The same way that a monetary system like ours gets built, because a powerful interest group decides it's a good idea at the time, and effectively sells the idea to everyone else, including the future victims of the failure of the system. After our monetary system finishes melting down, everyone will wonder how it was allowed to develop in the first place, and the architects of the system will ask, Who could have known?

The Fukushima Daiichi plant disaster ties into the iTulip theme since 1998: How do groups of highly educated and capable people collectively make crazy decisions, like building a nuclear power facility in an earthquake zone or a monetary system that can only grow more and more unstable over time?

CI: Do you think the earthquake in Japan will boost the Japanese economy by providing jobs for re-construction?
EJ: That's the Broken Window Fallacy. The question was settled 150 years ago, yet it still comes up in the media every time there's a disaster as if it were a valid topic of debate. How about we reopen the debate over whether the earth is the center of the universe?

CI: No re-construction boom?
EJ: They will repair the roads but natural catastrophes do not improve economies. By that logic, New Orleans should be booming after Katrina. Look at before and after pictures of Indonesia since the tsunami five years ago. Most of the area that was destroyed remains undeveloped. An enterprising friend of mine flew there six months later to shop for property bargains. He bought a bunch of land. Thing is, no one wants to build on property where a major natural disaster occurred within recent memory. Who wants to live where so many people died? The place is filled with ghosts. Who will insure it? In Japan’s case, the wrecked areas may not be rebuilt for a generation.

CI: Broken window fallacy?
EJ: The name comes from Frédéric Bastiat’s parable of the broken window from Ce qu'on voit et ce qu'on ne voit pas (1850):

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
CI: What are the lessons of the Fukushima nuclear plant disaster? Tie this back to our theme.
EJ: Assume the laws of human nature are in force and you are not getting the truth when a powerful and politically connected industry is in crisis. It took decades for the health risks of tobacco to come to light. The media was no help until the tobacco industry was already on the ropes. Once cigarette advertising was widely banned and the advertising revenue dried up, it was safe for the media to cover the obvious dangers of a product that killed millions. Only then did the media join in on the side of consumers. We re-opened iTulip in March 2006 to warn about the risks to the financial system and the rest of us posed by credit risk pollution (http://www.itulip.com/riskpollution.htm). We specifically identified credit derivatives, asset-backed securities, secondary-market syndicated loans, interest-only mortgages, and sub-prime mortgages and consumer loans as the future nexus of the coming credit crisis, a crisis didn’t occur for another two years. Two years is about my average forward vision on these events. As the global monetary system finishes melting down, don't expect a valid real-time explanation of events from the media. On the other hand, don't assume that the crisis will necessarily "go Chernoby." There will be a lot of noise and very little signal. For those of us who started to prepare for this ten years ago, it's all about the exit.

CI: Today you’re warning about a monetary system crisis and oil energy crisis two to three years out, with inflation running to double-digits?
EJ: I want readers to get into the habit of referring to an inflation process instead of inflation. You’ve heard me say it 100 times, but it’s very important to get your head around the fact that the results of an inflation process at any given time have to be distinguished from the underlying forces that are producing the results at any time. Otherwise all manner of errors of deduction occur.

CI: What kind of errors?
EJ: One mistake is that all inflation processes are the same in all places and times. The most persistent mistake is the idea that high all-goods price inflation is inconsistent with high unemployment all or even most of the time. No amount of evidence can dislodge this misconception. Americans in the US find the idea intuitive from personal experience, but that’s not scientific.

CI: Count me with them. High unemployment and inflation don’t make sense to me.
EJ: The mistake comes from the intuitive idea that if there are many unemployed, who’s got money to buy stuff? High unemployment means labor has no pricing power. Goods and services prices have to fall along with wages. As demand falls prices fall. All things being equal, this intuitive idea roughly conforms to fact, at least for a while. But all things are not always equal in the real world for long. Inflation is, simultaneously, a factor of the demand for the money that is used in transactions relative to the quantity of that money, and the supply of the goods and services being purchased with that money. The demand for money is a related to but independently operating factor of inflation. Remember our forecast in 2007 that the Fed was to meet the surging demand for money that occurs during a private credit market crisis, to halt deflation? Remember that I forecast that dollar depreciation, the Foolproof Way of ending deflation was the unstated policy tool? Now the challenge is to respond to reverse the process, to prevent a sudden collapse in the demand for money. You can see the collapse happening now in gold and silver prices as the demand for money falls and consumers move out of paper assets and into hard assets. The Fed thinks it can stop this by raising interest rates, to get money back out of hard assets and into paper. But raising interest rates today will do the opposite, because the economy will contract and that will weaken the dollar further. It's not stagflation, it's the Ka-Poom debt and currency crisis process that I laid out 10 years ago.

CI: Show me an example of unemployment and inflation rising together.
EJ: Consider the comparison of unemployment and inflation in Argentina starting in 2002, immediately after the latest Argentina Ka-Poom. The currency and bond crisis peaks in 2002. Unemployment stands at 21% and inflation at 41%. One year unemployment was 14% and inflation was minus 1.5% – a brief period of deflation. Both unemployment and inflation exploded together from this base of low inflation and high unemployment.


http://www.itulip.com/images2/argentinainflationvsunemploy2002-2011wtmk.png

CI: What happened to cause high unemployment and inflation?
EJ: Argentina’s currency peg collapsed, producing a wave of inflation as businesses failed both due to the inflation and the collapse of the credit markets.

CI: A classic iTulip Ka-Poom scenario from 1999?
EJ: Yes, as a mechanism but the US bond market and dollar cannot go down in precisely the same way. The US is not Argentina. We will see a different form of the process but with many of the same elements. We'll talk about that later when we get to the topic of gold. Getting back to Argentina and our discussion of inflation versus unemployment, starting from that peak in inflation and unemployment in 2002, as the bond and currency markets recovered in 2003 and 2004, inflation fell back to 2.3%, where the US inflation rate is purportedly today, while unemployment fell to 14.4%.

If you took a snapshot of that single 2003 to 2004 period you might ask, Why is inflation falling if unemployment is falling? Ff you look at how those high rates of inflation and unemployment came about, you’d see that inflation fell a lot more than unemployment; unemployment fell by 30% as inflation fell by 94% after the bond and currency crisis because of changes in the demand for money as interest rates fell at the same time labor markets recovered.

Then in 2005 inflation rises to nearly 11% as unemployment falls to 10%. During this period we finally see the correlation of falling unemployment and rising inflation that we’d expect to see, the relationship that we can relate to from experience and which is intuitive to most Americans; labor markets recovery while the demand for and supply of money is stable.

This is followed by period of falling inflation and rising unemployment starting in early 2008 until mid 2009, during the global financial crisis. Unemployment rises to 9.1%, then falls to 7.3% where it is today, when inflation is around 11%. Note that the previous time unemployment was 7.3%, inflation was only 7.2% not 11% as it is today.


http://www.itulip.com/images2/NYFeb2001vsTaipaeiMarch2011.png
Times Square NYC January 2011 versus Taipei April 2011
Photo Credit: Eric Janszen

CI: How do we relate this to the US if the US is nothing like Argentina?
EJ: Argentina is a small, politically insignificant economy. It owed its foreign debt in US dollars. The US doesn't fit the model. My theory since 2007 for the US is that when the goods and services supply constrained postcatastrophe economy is reflated via monetary and fiscal stimulus, that unemployment will recover, demand for goods and services will rise, demand for money will fall relative to the massive supply that was created to halt the deflation of late 2008 and early 2009, while the weak dollar will continue to exert cost-push inflationary pressures. Oil prices will surge over $100 in a new Peak Cheap Oil Cycle. Inflation will rise off a much higher level of unemployment than in previous recoveries due to these factors. That’s the special character of this inflation process, unlike the 1970s in the US or anywhere else.

CI: Inflation without wage inflation?
EJ: Unintuitive, but wage inflation is not yet relevant at this stage of our inflation process. Government wage rates usually lead wage inflation.

CI: How?
EJ: What matters is how the structure of the US economy was changed by the two bubbles and reflations over the past ten years, as private and public debt levels ratcheted up. Consider the fact that total employment fell by 2.6 million jobs since the year 2000 while local, state, and federal government employment grew by 1.8 million.


http://www.itulip.com/images2/GovtEmploymentvsTotal2000-2009wtmk.png

Take a closer look and you find that 80% of the employment growth within the government sector was in local government payrolls.


http://www.itulip.com/images2/GovtEmployment2000-2009wtmk.png

Two out of every 10 people in the US work for the government.


http://www.itulip.com/images2/GovtEmploymentPercentTotal2000-2009wtmk.png

CI: So we are like Argentina.
EJ: You can say we are headed in that direction. There are only as many jobs today in the private sector as there were in 2004, seven years ago. The goods producing and manufacturing sector employment actually shrank since 2004. Only the educational services and local government sectors showed any appreciable rise to compensate for the employment losses in the goods producing and manufacturing sectors, to keep the total level flat. In 2001, 14 million were employed in local government and 17 million in manufacturing. Ten years later, 15 million are employed in local government and 12 million in manufacturing.


http://www.itulip.com/images2/employmentdistributionFeb2001-Feb2011wtmk.png

CI: Is wage price inflation weakest in the sectors where employment has declined?
EJ: That's what you'd expect and it is so.


http://www.itulip.com/images2/wagepriceinflationbyindustry2001-2011wtmk.png

You can see above that the wage cost index for the goods producing and manufacturing sectors has been slower than for those that have remained flat. You can see wage costs rising at a slower rate overall since the end of 2007.

CI: What if you compare wage cost indexes with food price indexes?
EJ: What's interesting is that food price inflation went up rapidly in 2008, dropped in 2009, and now parallels wage costs. Before the financial crisis and reflation via dollar depreciation, wage costs increased faster than food prices. Food felt cheap. Now it doesn't, and it feels expensive if you work in the goods producing and manufacturing sectors that are shrinking and wage costs are rising more slowly than than the food price index.


http://www.itulip.com/images2/wagevsfoodpriceinflation2001-2011wtmk.png

CI: I can't tell from these charts if the labor market is really improving.
EJ: Right, the way to do that is to look at the job openings rate. At just above 2%, they are not much better than they were during the dark days of 2009. The job openings rate tends to peak in April and decline through the rest of the year. Below we compare the rate for the last four years starting in 2007.


http://www.itulip.com/images2/jobopeningsallprivate2007-2010wtmk.png

To get an idea of how the jobs recovery today compares to past recoveries, such as the housing bubble boom recovery starting in 2004, the change in the number of job openings from the middle to the end of the year is instructive.


http://www.itulip.com/images2/jobopeningsbyindustryJunVersusDec2004wtmk.png

During the darkest days of the past recession, job openings collapsed over the June to December period. Only educational services increased job openings -- by 5,000 jobs across the entire US economy.


http://www.itulip.com/images2/jobopeningsbyindustryJunVersusDec2008wtmk.png

The picture, while still bad in 2009, improved vastly and job openings shrank by only 186,000 versus 791,000 the year before. After a year like 2008, any improvement in the job openings picture feels like a recovery.


http://www.itulip.com/images2/jobopeningsbyindustryJunVersusDec2009wtmk.png

But even in 2010, a supposedly strong recovery year when the stock markets packed on trillions in market cap, the period was net negative for private sector job openings growth. Job openings declined by 126,000. Compare that to 2004 above when the economy added 54,000 job openings.


http://www.itulip.com/images2/jobopeningsbyindustryJunVersusDec2010wtmk.png

CI: Where are the jobs?
EJ: Overall, the total number of job openings is almost back up to where it was at the worst part of the last recession in 2002, which is to say, terrible. Job openings are rising fastest in the largest employment sector, professional services, flat in the second largest, health care, and rising in state and local government.


http://www.itulip.com/images2/jobopeningsbyindustry2001-2010wtmk.png

CI: Do you have a best and worst chart on job openings, by sector I mean?
EJ: The worst sector is of course construction, but it doesn't employ many workers, as you can see from the Employment by Economic Sector chart above. For construction, the job openings rate peaked at nearly 4.5% in April 2001 and hit an all time low of 0.5% in December last year. If you're in construction, your industry is basically dead in the water.


http://www.itulip.com/images2/jobopeningsconstruction2001-2010wtmk.png

CI: The picture of the economy that you are painting is one where government and professional services employment cost increases fuel an inflation spiral for everyone else. Won't weak labor markets in the other sectors cancel out the effects of wage inflation in the government and professional services sectors?
EJ: It doesn't work that way. Depends on all the other factors that are coming into play, including demand for money, which is determined by incomes and interest rates. If inflation expectations are rising, and a perception that wage rates are rising at least in some industries, and interest rates are not rising, demand for money declines, and inflation expectations are met with rising prices. In this way, commodity price inflation is transmitted into the entire pricing complex. Over the next year and a half, rising wage rates in growing industry sectors will fuel a new stage of the inflation process starting in the second half of the year.

Global Monetary Meltdown - Part II: The first inflation, but not the last ($ubscription) (http://www.itulip.com/forums/showthread.php/19099-Global-Monetary-Meltdown-Part-II-The-first-inflation-but-not-the-last-Eric-Janszen?p=195306#post195306)

The reflated postcatastrophe economy has morphed into an inflationary boom economy. In many ways it feels like a recovery, with retails sales and other measures rising just as they would after a recession under normal conditions. This is responsible for the resilience of the stock market. Two things are happening: demand for money is falling and demand for goods and services is rising.

• Inflation expectations at the gas pump
• Surviving suppliers pass on commodity price inflation to consumers employed in the professional services industry and state government
• Purchasing power on the wane
• Global consumer price inflation breaches 5%
• FIRE Economy goes global
• US debt levels take the cake
• Real DJIA revisited
• Housing bubble collapse revisited
• Peak Cheap Oil Cycle revisited
• What price gold when the gold window is re-opened?


http://www.itulip.com/images2/BackyardCrocusApril62011-640.jpg
Spring crocuses bloom with the global inflationary boom, April 2011
Photo Credit: Eric Janszen


CI: What season of the inflation process are we in today?
EJ: We are in the spring of an inflationary boom, when a persistently weak dollar and accommodative monetary policy continue to increase inflation expectations in a time of high but declining unemployment. The reflated postcatastrophe economy has morphed into an inflationary boom economy. In many ways it feels like a recovery, with retail sales and other measures rising just as they would after a recession under normal conditions. This is responsible for the resilience of the stock market, and we'll get the the stock market shortly. Two things are happening: demand for money is falling and demand for goods and services is rising.

CI: I’ve never understood this idea of inflation expectations. How is it measured?
EJ: There are several measures of inflation expectations. This article at the Cleavland Fed (http://www.clevelandfed.org/research/trends/2010/0410/01infpri.cfm) does a decent job of explaining them. The most well known and widely used is the University of Michigan Survey of Consumer Attitudes and Behavior. For all of the statistical science that goes into it, it's my contention that what they are really measuring is gasoline prices. In other words, the average consumer's expectations of future inflation are set at the gas pump.

http://www.itulip.com/images2/inflationexpectationsvsgasolinewtmk.png
Does the price at the gas pump set consumer inflation expectations? more... $ubscription (http://www.itulip.com/forums/showthread.php/19099-Global-Monetary-Meltdown-Part-II-The-first-inflation-but-not-the-last-Eric-Janszen?p=195306#post195306)


iTulip Select (http://www.itulip.com/forums/showthread.php/1032-iTulip-Select-Subscription-Description?p=7837#poststop$session[sessionurl_q]): The Investment Thesis for the Next Cycle™
__________________________________________________

For a concise, readable summary of iTulip concepts read Eric Janszen's 2010 book The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&link_code=as3&camp=211189&creative=373489&creativeASIN=1591842638)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=1591842638.

To receive the iTulip Newsletter/Alerts, Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)

To join iTulip forum community FREE, click here (http://www.itulip.com/faq.php?faq=vb3_board_usage#faq_vb3_register) for how to register (http://www.itulip.com/register.php).

Copyright © iTulip, Inc. 1998 - 2011 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/GeneralDisclaimer.htm)

Chomsky
04-22-11, 10:37 PM
So good to see you back; things were getting stale here.

jk
04-23-11, 03:13 PM
a couple of questions:
1. you say that there are increased job openings in state and local gov'ts, while my impression is of layoffs and forced or encouraged early retirements in those sectors. what's the story there?
2. you imply that the main transmission mechanism for inflation will be rising salaries in couple of sectors. yet, as your interviewer points out, falling or stagnant wages for the majority would seem to offset that. why do you think that will be more significant than commodity-based inflation and the effect of RISING WAGES GLOBALLY? especially rising wages in china feeding into the prices of manufactured goods? why assume that there must be rising wages LOCALLY when we live in a globalized economy? similarly, you talk of u.s. demand driving prices as if we lived in a closed economy, but demand is GLOBAL for globally traded goods.

EJ
04-23-11, 04:07 PM
a couple of questions:
1. you say that there are increased job openings in state and local gov'ts, while my impression is of layoffs and forced or encouraged early retirements in those sectors. what's the story there?

Where do you get the impression that layoffs and forced or encouraged early retirements are outpacing job growth in the state and local government sector? My source is the BLS data. Is the representation of the data unclear? They show employment in those sectors holding steady around 14 million. They show job openings rising by 55,000 from June to December 2010. What is your data source? Where is your analysis of it?


2. you imply that the main transmission mechanism for inflation will be rising salaries in couple of sectors. yet, as your interviewer points out, falling or stagnant wages for the majority would seem to offset that. why do you think that will be more significant than commodity-based inflation and the effect of RISING WAGES GLOBALLY? especially rising wages in china feeding into the prices of manufactured goods? why assume that there must be rising wages LOCALLY when we live in a globalized economy? similarly, you talk of u.s. demand driving prices as if we lived in a closed economy, but demand is GLOBAL for globally traded goods.

Where do you get this from? Where in 13 years here have I ever done an analysis that assumes a closed economy? Quite the opposite. I show consumer price inflation rising between 4% and 5.5% globally. My sources are the IMF and MIT BPP. My data show wage costs rising in sectors of the US economy where employment is growing. Why do you think rising wages in China are a significant factor in the rise in the prices of manufactured goods in the US? On what theory? If your own, please show me the work that you did to arrive at this view. Based on what data? Have you looked at a manufactured goods import price index for the US?


http://research.stlouisfed.org/fredgraph.png?g=gC

I don't understand your question. If you show me your own analysis maybe I can better understand what you are trying to ask me.

we_are_toast
04-23-11, 05:38 PM
Where do you get the impression that layoffs and forced or encouraged early retirements are outpacing job growth in the state and local government sector? My source is the BLS data. Is the representation of the data unclear? They show employment in those sectors holding steady around 14 million. They show job openings rising by 55,000 from June to December 2010. What is your data source? Where is your analysis of it?




From the Rockefeller Institute of government. July 2010.

http://www.rockinst.org/newsroom/data_alerts/2010/08-10-govt_employment.aspx


After rising for eight consecutive months since the start of the recession, state and local government employment has declined for 17 out of the last 23 months. The 102,000 jobs lost in state and local government over just the last three months has been the greatest in any three-month period since the double-dip recession of 1980-82. Employment for state government employment and local government employment are now both below their pre-recession levels — state government employment is down 0.1 percent since the start of the recession in December 2007, local government employment is down 0.9 percent, and combined state and local government employment is down 0.7 percent.

From the BLS, March 2011.

http://www.bls.gov/news.release/pdf/empsit.pdf


Employment in local government continued to trend down over the month. Local government has lost
416,000 jobs since an employment peak in September 2008.

Center on Budget and Policy priorities, Feb 9, 2011.

http://www.cbpp.org/cms/index.cfm?fa=view&id=1214


Cuts in State Government Workforces
At least 44 states plus the District of Columbia are eliminating or not filling various state jobs, imposing mandatory furloughs (time off without pay), or making other cuts affecting their state workforce. Such steps can make it more difficult for residents to obtain state services. Cutting staff — whether on a permanent or temporary basis — also may contribute to increased unemployment.
number of states are imposing furloughs and/or pay cuts for some state employees. These include Arizona, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, Washington, and Wisconsin.


I share some of the same concerns as JK.

metalman
04-23-11, 06:04 PM
local government... losses are 416,000 out of 14,000,000 jobs... is what percent?

manufacturing and goods producing... losses are 5,000,000 out of 17,000,000... is what percent?

lektrode
04-23-11, 06:53 PM
local government... losses are 416,000 out of 14,000,000 jobs... is what percent?

manufacturing and goods producing... losses are 5,000,000 out of 17,000,000... is what percent?

PRECISELY!
the comments re gov job losses appear to eminate from gov workers, who for perhaps the first time in their careers, feel somewhat threatened by the sudden realization that the US and/or most states (esp the blues) HAVE A GOV (consisting mostly of an unproductive buracracy) THAT WE CAN NO LONGER AFFORD!

out here in the middle of nowhere (HI, a typical blue state) we hear a lot of wailing about 'cuts' but most of that ISNT where most of the costs are: THE HEAD COUNTS - what they are cutting is typical: cuts that are felt most immediately by the public, while the buracracy gets a bit of a trim here and there, mostly where the public comes in direct contact, vs the 'backrooms' that the public never sees! and NOBODY GETS LAID OFF, merely the elimination of funded, but unfilled positions....

and another thing: FURLOUGHS ARE ***NOT*** THE SAME AS A 'pay cut'

a true 'pay cut' would be just what it is in the private sector: YOU GET TO WORK THE SAME NUMBER OF HOURS for less money - vs what the reality of a 'furlough' means for the public sector: one gets more days off, while the public gets less 'service' due to shorter hours of city/state business offices (and the farce in the case of the public school system here in HI, where the union forced the prev guv to furlough the teachers along with the 'support' staff, vs just the 'support' staff - again, cuts that cause the most pain to the gen'l public, while limiting the damage to the politicians re-election campaigns = brilliant strategy on the unions part, eh? ;)

contrast this to red states: NH & UT where eye have most recently noted _real_ CUTS to the headcounts not just lip service and chin music from the political aristocracy about how 'sacrifices need to be shared'

jk
04-24-11, 07:47 AM
Where do you get this from? Where in 13 years here have I ever done an analysis that assumes a closed economy? Quite the opposite. I show consumer price inflation rising between 4% and 5.5% globally. My sources are the IMF and MIT BPP.
although you show global inflation, your analysis of the labor markets is restricted to the u.s. labor markets.



My data show wage costs rising in sectors of the US economy where employment is growing. Why do you think rising wages in China are a significant factor in the rise in the prices of manufactured goods in the US? On what theory? If your own, please show me the work that you did to arrive at this view. Based on what data? Have you looked at a manufactured goods import price index for the US?
the fact that u.s. manufactured goods prices haven't YET shown much imported inflation doesn't mean it isn't in the pipeline. as you say, inflation is a process. i also think the statement from walmart about inflation to come, inflation in the pipeline, applies to more than food.

EJ
04-24-11, 09:30 AM
although you show global inflation, your analysis of the labor markets is restricted to the u.s. labor markets.

Maybe you read somewhere that rising wage rates in Chinese cities push up wages in the US? These kinds of nonsense economics memes circulate the Internet until they gain some kind of currency, like the deflation theories that circulated until this year. I'd like to know the source of this one. Maybe we can stamp it out early.

In theory, labor competition from China, aka outsourcing, will tend over time to raise wage rates and China and lower them in the US or any country with higher prevailing wage rates with which China trades labor, such as Taiwan. When I ran a company with a subsidiary in Shanghai, we paid engineers, as I recall, something like $1,200 per month. A similar engineer with similar background was paid approximately $7,500 in the US at the time. On a purchasing power parity basis, the Chinese engineer made more that then US engineer. The main reason for the huge difference in salary is differences in purchasing parity due to housing costs. Housing was 14% of PCE in China but 33% of PCE in the US, but other factor contributed as well. Over the following years, the Chinese engineer's salary went up, along with his or her housing costs, and the US engineer's went down. Housing costs did go down for the US engineer somewhat due to the collapse of the housing bubble.

Wage rates in Chinese cities are climbing but not in the countryside. You have to think of China as two countries, a rich China of the large industrial cities and a poor China everywhere else. Until a few years ago a Chinese citizen living in the countryside needed a passport to get into a major city like Shanghai. The purpose of the policy was to regulate immigration from the countryside to the cities, in much the same way we in the US regulate low end wage rates through changes of immigration law with low wage rate countries in Latin America, except the Chinese do it within national boarders rather than between them: if wage price inflation is rising in the cities due to tight labor markets, ease immigration policy and let more workers in from the countryside. The fuel price trucker's strikes you are seeing in China are occurring in outside the major cities where the wage rates for truckers is lower and the rising cost of fuel is having a greater impact.

Primary demand for commodities from China is certainly contributing to rising global commodity demand and prices, but this has nothing to do with wage price inflation in cities in China.


the fact that u.s. manufactured goods prices haven't YET shown much imported inflation doesn't mean it isn't in the pipeline. as you say, inflation is a process. i also think the statement from walmart about inflation to come, inflation in the pipeline, applies to more than food.

My whole argument since 2007 that the inflation process will progress from cost-push inflation produced as a side-effect of the Fed's anti-deflation measures in late 2008, especially dollar depreciation, from cost-push inflation to cost-push plus demand pull inflation by the second half of 2011, as labor markets recover, consumer demand rises, demand for money falls with rising incomes and inflation expectations, all in an environment of constrained supply and reduced producer competition due to bankruptcies of suppliers during the financial crisis. The process has nothing to do with rising wage rates in China.

jk
04-24-11, 10:39 AM
My whole argument since 2007 that the inflation process will progress from cost-push inflation produced as a side-effect of the Fed's anti-deflation measures in late 2008, especially dollar depreciation, from cost-push inflation to cost-push plus demand pull inflation by the second half of 2011, as labor markets recover, consumer demand rises, demand for money falls with rising incomes and inflation expectations, all in an environment of constrained supply and reduced producer competition due to bankruptcies of suppliers during the financial crisis. The process has nothing to do with rising wage rates in China.
i agree, rising wages in china would not push up wages here unless they were rising by orders of magnitude, which they are not. but if chinese production profit margins are razor thin, and the cost of chinese labor is rising, that will at a minimum put a floor under goods prices, and tend to push them up [unless authorities want to subsidize the production in some fashion]. [remember when it was said that china was "exporting deflation"? no longer.]

re demand-pull in 2h2011- do you think the end of qe2 will undermine what appears to be stimulus-dependent growth in the u.s.? the cmi indices show a rather disastrous looking continued contraction, even now:

http://www.consumerindexes.com/commentary_2010_contraction_watch.png

where's the demand? except from the small top part of the hourglass for luxury goods?

but this chart only refers to the u.s. GLOBAL demand is rising, and somewhat wealthier chinese workers want more meat in their diets, etc, etc.

but i agree that inflationary expectations are rising, and the disappearance of many businesses here allows the survivors to gain some pricing power.

a personal datapoint- we've gotten 2.5% cola's on contracts in the past. we just got a 4% cola in a newly negotiated contract.

Jay
04-24-11, 11:07 AM
i agree, rising wages in china would not push up wages here unless they were rising by orders of magnitude, which they are not. but if chinese production profit margins are razor thin, and the cost of chinese labor is rising, that will at a minimum put a floor under goods prices, and tend to push them up [unless authorities want to subsidize the production in some fashion]. [remember when it was said that china was "exporting deflation"? no longer.].
But isn't that massive labor force in the Chinese countryside still sitting there hoping for jobs that pay little? That still looks like a deflationary force for goods prices to me.




where's the demand? except from the small top part of the hourglass for luxury goods?
Hourglass? It's a bowling pin!
<!---->
<!---->
http://rlv.zcache.com/bowling_pin_sculpture_photosculpture-p15364733394323392635xz_400.jpg



With plenty of red tape between the classes!!http://asset.zcache.com/assets/graphics/s.gif :(

Serge_Tomiko
04-25-11, 02:12 PM
EJ: I call it Cold War II. The US will find China a far more formidable proxy war adversary than the Soviet Union ever was. Totalitarian state finance capitalism combined with mercantilism is infinitely more productive than communism ever was. Throw in China's dollar destroying debt leverage over the US, and you have a prescription for an eventual monetary crisis (see: Economic MAD, 2006). A less well developed form of a the same economic system financed a lunatic racist and militarist Nazi regime so successfully in the 1930s that it was able to challenge the entire rest of the world in productivity and war, and that was only a few years after the German economy was ruined by war and hyperinflation, followed by the sudden withdraw of US and British foreign direct investment in 1930 that crashed the Germany economy anew. The rise of the right in Finland and across Europe today is being accelerated by divisions of an escalating sovereign debt crisis.


Sheesh.

metalman
04-25-11, 03:02 PM
Sheesh.

& the winner is... totalitarian state capitalism! (http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25)

flintlock
04-25-11, 03:59 PM
The entire region, including the terribly repressive and critically important US military allies in Syria, are being draw into a process of political change that is evolving into proxy wars. My view is that without strong and creative US leadership now, the Arab revolutions are quickly morphing into a new cold war between China and its allies and the US and its

While I agree with the second sentence, is Syria really considered an American ally now?

metalman
04-25-11, 04:21 PM
While I agree with the second sentence, is Syria really considered an American ally now?

how can the usa get out of iraq w/o syria's help? how does israel manage iran without syria's help?

flintlock
04-25-11, 06:21 PM
We may want to wait and deal with the new owners.:(

ASH
04-25-11, 07:05 PM
What should we make of our precessing world? From my recent travels to Asia, Europe, and across US, and from conversations with contacts around the world, the picture is at once promising and terrifying. Thus begins a long series I've titled "Global Monetary Meltdown." This is Part I of N, the first of an indeterminate many, that tracks the progression of processes that I started to explain here since 1998, as we get down to the short strokes in the final years.

The end cannot be but two years off at most. Our outmoded US-centric monetary system and debt financed FIRE Economy are disintegrating under the weight of inflation taxes that are a consequence of private sector debt bailouts, the moving of private debt to public account, and a rigidly distorted energy infrastructure that depends on cheap oil. The final stages, that we hedged with gold bought in 2001 at $265 per ounce, are upon us.


- Eric Janszen, April 2011


No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

If the end of a US-centric monetary system requires that the US stop running large external deficits, and the US government stop running large budget deficits, within two years, then this prediction has massive practical ramifications. Likewise, if we are obliged to cease pursuing credit-driven asset bubble-based growth. I suppose the clarification to be sought is whether "the end" refers to "the end of the beginning", or rather to "the end of the process". My understanding is that EJ thinks we've been in the process for many years now, so I presume he actually means the end of the process is approaching.

Big questions arise for the worker. The investor might ask "how do I play this, or protect my accumulated assets"? But the worker must ask "will I still be employed -- and what employment opportunities will exist -- if trade and fiscal adjustment is rapid rather than gradual?"

c1ue
04-25-11, 07:52 PM
No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

To be fair, iTulip and EJ have long looked at 2013 at the definite year in which a weak and artificial recovery will relapse into recession - with all the attendant fiscal issues arising from the massive accumulation of debt both on private (individual) and public balance sheets.

jk
04-25-11, 08:44 PM
No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

If the end of a US-centric monetary system requires that the US stop running large external deficits, and the US government stop running large budget deficits, within two years, then this prediction has massive practical ramifications. Likewise, if we are obliged to cease pursuing credit-driven asset bubble-based growth. I suppose the clarification to be sought is whether "the end" refers to "the end of the beginning", or rather to "the end of the process". My understanding is that EJ thinks we've been in the process for many years now, so I presume he actually means the end of the process is approaching.


i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

Serge_Tomiko
04-25-11, 08:49 PM
An excellent acknowledgement of realpolitik.

But what is my point? EJ is simply so corrupted by political correctness he does not see the absurdity of his words.

In 1933, Germany was a nation geographically about the size of Texas wi, th 60 million people. The unemployment rate was crushing. The country had no industry. Its only significant natural resource was coal, which was under military occupation. In six years, that country was capable of fighting the combined forces of the British Empire and the Soviet Union - the two largest empires ever to have existed on this earth. The fought them, and later the United States, for almost six years and arguably could have won had they adopted the brutal methods of their enemies. Nearly every battle was against overwhelming odds. What victories they achieved came from discipline, tactical skill, and tremendous ingenuity on many levels.

How is that lunacy?

One need spend a few hours reading the beginning of Mein Kampf - a book that is banned in most of Europe - and see the world has become precisely what Adolf Hitler said it would. If you want to disagree with his methods, so be it. But don't pretend the decadent wasteland of Amerika was not anticipated in the past. Such deception merely opens the door to another demagogue.

thriftyandboringinohio
04-25-11, 09:19 PM
...One need spend a few hours reading the beginning of Mein Kampf - a book that is banned in most of Europe..

Not really true.
In Europe, it's banned in Austria, Netherlands, and Romania. Hardly most of Europe.

Also banned in Russia, People's Republic of China, and Argentina. That's 6 countries worldwide.

zoog
04-26-11, 01:23 AM
...


where's the demand? except from the small top part of the hourglass for luxury goods?

Hourglass? It's a bowling pin!
<!---->
http://rlv.zcache.com/bowling_pin_sculpture_photosculpture-p15364733394323392635xz_400.jpg

With plenty of red tape between the classes!!http://asset.zcache.com/assets/graphics/s.gif :(

A squished bowling pin at that

http://i52.tinypic.com/29fcmky.png
(source: ssa.gov annual net compensation data)

Chris Coles
04-26-11, 03:57 AM
A squished bowling pin at that

http://i52.tinypic.com/29fcmky.png
(source: ssa.gov annual net compensation data)

That base of the squished bowling pin above; 24.3 million desperately deprived struggling underpaid employees presents by far the greatest opportunity to improve the economic capacity of the nation. And I am not by any measure, the first individual to suggest that increasing the prosperity of the bottom, grass roots of society, is the way to go.

Chris Coles
04-26-11, 04:00 AM
i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

Add me to that list.

ASH
04-26-11, 04:03 PM
i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

With luck. There is something of a dichotomy between the "inflation is a process -- not an event" narrative, and the use of terms like "the end" and talk of an accident "that could happen at any time". The gradual scenario is a reserve currency decommissioning process that plays out over decades. That is the long term big picture that is assured to happen. That is the process that EJ says we are already a decade or more into; it isn't a process that is going to start within 2 years. But EJ has also been talking about the possibility of a sudden stop -- a currency accident that could befall us in the midst of the long-term process. Without an accident, imbalances are righted over an extended period of time; in the event of a sudden stop, the period of adjustment will have to be much shorter. I hope EJ will correct me if I'm reading too much into his diction, but I think the simplest interpretation of phrases like "final years" is that he's talking about ka-POOM.

Chris Coles
04-26-11, 05:56 PM
Ash, from my understanding, yes, there may be a sudden collapse; but the end effect would be to "bottom out" so to speak and in which case, once arrived at, there would not be a equally sudden rebound. Instead, a very real likelihood of a prolonged period of substantially lowered expectations followed by a long, steady period of many decades of growth from a reduced starting point. Perhaps much like the period between the late 1940's to the early 1970's.

gnk
04-27-11, 10:03 AM
I say we also look to history as a guide. We look at what ended Bretton Woods and look for a similar comparison in today's crisis.

Our trading partners, that had surplus dollars, were increasingly becoming uneasy for about a decade prior to 1971. They were redeeming gold at an alarming rate in the mid to late 1960s. The turning point was the collapse of the London Gold Pool (http://en.wikipedia.org/wiki/London_Gold_Pool) in 1968.

So.... I would put the turning point for the questioning of today's system at 2007-2008. Remember Hank Paulson going to Asia to reassure the Chinese that their agency debt investments were safe? That they should continue buying agency debt (all Ponzis need participation to be viable). Remember John Thain of Merrill Lynch going to the Middle East, and I believe Asia, peddling US financial debt to save his firm? They were not that successful. That's the turning point, IMO.

The eastern nations today are in the same, if not worse position than our European trading partners of the 1960s. These eastern nations, from the Middle East to Asia, got badly burned with agency debts, Bear and Lehman investments, etc... Now they are focusing on US Federal debt and wondering if this is Act II of a bad movie. The BRICS are entering into non-dollar denominated transactions. The US Dollar debt based system is collapsing right now, IMO - but it is a process.

I would say that the increasing non-dollar denominated trade is the #1 threat to the functioning of the US Treasury market. To me, it is similar to the failure of the London Gold Pool. The London Gold Pool collapsed in 1968, and three years later, the gold window was closed.

In my view, we are 4 years into the last phase, starting with 2007/2008 as the turning point. To me, 2007/2008 can be compared to 1968. Remember, in 1968, the London Gold Pool, used to suppress the price of gold to $35 an ounce, collapsed. In 2007-2008, the secondary market for US Agency debt which had higher returns than US debt collapsed. But unlike gold redemptions, a US debt based system (whether it is agency or gov't) can last longer under crisis mode. Whereas in a gold crisis, gold reserves get depleted fast, in a debt based system crisis, one can always print more money to service debt and prop up the market. The rate of dollar value depreciation is slower than the rate of gold reserves depletion.

Just my opinion. But I think ultimately, China forces the issue somehow, openly or behind closed doors.

But one things has been left out of the discussion - the SDR.

jk
04-27-11, 10:46 AM
in another thread i suggested than an intermediate "solution," less radical than going to a purely gold-backed system, would be an sdr in which the u.s. dollar would be a major component, but also containing commodities and a pm component.

gnk
04-27-11, 11:06 AM
A purely paper/fiat/debt based SDR including the RMB only spreads around the "exorbitant privilege" of having a reserve currency and appeases China to a degree, but that however, does not address the severe surplus/debt imbalances between East and West, particularly, the US debt. I have said, before, short of an all out global war, only revalued gold can rebalance the world economy.

So I would agree with you that a SDR would need some real asset backing.

I also see an interesting long term development. After WWII, the US had 22,000 tons of gold. A large part of that migrated to its major trading partners - mostly in Western Europe. Now I see the next stage involving another gold migration - from the US/EU to Asia/BRICS.

The world economy can then rebalance itself, but the free ride the West enjoyed will be over. The West will have to re-earn that gold thru trade. There is no way around that, regardless of the solution chosen.

c1ue
04-27-11, 12:29 PM
I have said, before, short of an all out global war, only revalued gold can rebalance the world economy.

The only way revalued gold can rebalance the world economy is if there is a debt jubilee right before the change.

I sincerely doubt that would happen.

Secondly even with a debt jubilee, a conversion to 'hard' currency or even 'firm' currency like an SDR with PM component still results in a massive recession in the US, UK and much of the EU. This blows back to Asia immediately.

IMO, no one whatsoever in the present situation has any desire to change anything of significance - either in Asia or the West.

The BRICs will just continue their growth, including inter-BRIC and inter-BRIC trade partner trade, which is anyway significantly divorced from the mainstream US dollar world reserve currency trade. When/if a balance of payments crisis arises in the West, the BRICs will get hurt, but the alternative systems will provide a growth path out whereas the West will have to do it the hard way: massive Latvian style cuts combined with decades of recession.

gnk
04-27-11, 01:16 PM
The re-balancing with gold is already occurring.

We think of the East as having the surplus, and the west as having the debts. But let's look at it another way:

The East has a surplus of Western paper promises, which are diminishing in value.

The West has most of the gold, which is increasing in value.

It's just a matter of time... Debt jubilee? too destructive, think double entry book keeping... War? Now that's really destructive, would make WWII look like tame.

jk
04-27-11, 01:54 PM
The world economy can then rebalance itself, but the free ride the West enjoyed will be over. The West will have to re-earn that gold thru trade. There is no way around that, regardless of the solution chosen.
the other ride that will be over is export-led growth in the em's. that will be [almost?] as big an adjustment for them as what will happen in the west.

gnk
04-27-11, 02:13 PM
Good point. Basic double entry book keeping. A trade surplus relies on someone else having a trade deficit. It's mathematically impossible for every nation in the world to have a trade surplus.

Jay
04-28-11, 03:03 AM
I still think it makes sense for the powers that be to try and implement a Carbon Money propped up by an international carbon tax. I don't know if it is implementable, but I bet they are thinking about it. Then everyone who makes money off of the existing fiat system can keep on living like kings and the printing continues via more debt.

Quincy K
04-29-11, 08:57 PM
Why two years? Why not five? Six? Seven? Ten?

Why does this game, and the current System for that matter, have to end? Why can't the US continue to run deficits, deficits that everyone knows we are never going to pay back? What is going to be the catalyst for the System to fail. Who is going to call the US bluff?

Why would any country, other than a rogue with terrorist motives, want to make a run on the Treasury market?

Jim Bruno
04-29-11, 11:04 PM
Hi Chris,

I thought you may wish to see this article, particularly as you are from the UK. Be sure to take a look at the footnotes...13 is quite direct. Jim Bruno
http://www.leap2020.eu/GEAB-N-54-is-available-Global-systemic-crisis-Autumn-2011-Budget-T-Bonds-Dollar-the-three-US-crises-which-will-cause_a6340.html

Chris Coles
04-30-11, 05:03 AM
Hi Chris,

I thought you may wish to see this article, particularly as you are from the UK. Be sure to take a look at the footnotes...13 is quite direct. Jim Bruno
http://www.leap2020.eu/GEAB-N-54-is-available-Global-systemic-crisis-Autumn-2011-Budget-T-Bonds-Dollar-the-three-US-crises-which-will-cause_a6340.html

Jim, thanks for that. This other link from the same is even better:

Britain's leaders should come clean on the true depth of the fiscal crisis

The UK's fiscal retrenchment, we are told, is being conducted at an "extraordinarily ambitious pace". Last week's annual Budget statement pledged to "eliminate the structural deficit by 2014/15".

http://www.telegraph.co.uk/finance/comment/liamhalligan/8408664/Britains-leaders-should-come-clean-on-the-true-depth-of-the-fiscal-crisis.html

By Liam Halligan (http://www.telegraph.co.uk/finance/comment/liamhalligan/), Economic Agenda 3:48PM GMT 26 Mar 2011

But I have to say that, while there are important differences between the UK and the rest of Europe that seem to point towards disaster here in the UK; there is a way out of the dilemma for the UK, indeed, for the US as well. Investment of fresh equity capital on free enterprise terms into the grass roots via "Vanishing Bonds". But at the moment all that is stalled while my US telecom patents are being sold, (hopefully), so that I too have some form of capital base as a starting point for my campaign for The Capital Spillway Trust. So, watch this space and, as any inventor will tell you, do not hold your breath .... we get used to "setbacks".

Sharky
05-04-11, 08:22 PM
One effect of QE in the US has been to export inflation to other countries, especially China, given the fixed peg of the yuan to the USD.

What would happen if China decided to significantly revalue the yuan? Goods from China would have higher prices, and at the same time, the purchasing power of China in global markets -- particularly commodities -- would increase, possibly increasing prices there as well. It might cause significant unrest inside China, but is there a point where that trade-off might be worth it for them?

bart
05-04-11, 08:46 PM
http://www.nowandfutures.com/images/imports_china_inflation.png

jpetr48
05-11-11, 12:31 AM
43% increase in carbon black in three price increases starting September 2010. Yet guys like Rosenberg, Hussman say there is no inflation. Hussman says wait till 2015 and beyond. Carbon black is a key raw material that enhances the performance of rubber, plastics, inks, and paints-in other words your every day essentials.

Is it not reasonable to expect this cost push inflation to permeate wages

http://www.columbianchemicals.com/

thriftyandboringinohio
05-11-11, 09:35 AM
43% increase in carbon black in three price increases starting September 2010. Yet guys like Rosenberg, Hussman say there is no inflation. Hussman says wait till 2015 and beyond. Carbon black is a key raw material that enhances the performance of rubber, plastics, inks, and paints-in other words your every day essentials.

Is it not reasonable to expect this cost push inflation to permeate wages

http://www.columbianchemicals.com/

Carbon black is essentially pure petroleum, burned as poorly as possible to create maximum soot (the soot is carbon black)
May not be the best commodity to track general inflation.

jpetr48
05-12-11, 12:00 AM
Not a commodity still worth a look
http://bit.ly/mlRfVY
KCP&L granted nearly 21% hike

Chris Coles
05-12-11, 03:37 AM
Not a commodity still worth a look
http://bit.ly/mlRfVY
KCP&L granted nearly 21% hike



The rate case had been grounded on paying for the costs of building the Iatan II power plant in Platte County. The new rates are scheduled to take effect June 4

This is something that I have highlighted before. Today, we build new plant with borrowed funds; where, in the past, we built new plant with equity capital. The difference is stark! When you fund major plant build costs with borrowed funds, the modern tendency is to expect the present customer to pay for the borrowing costs, "up-front".

In the past, using equity capital from a savings institution, the saver has to wait for the new plant to come on stream before seeing a return on their capital. ..... but, the original costs of the build are much lower, both because of not having to fund the borrowing costs and also, (and perhaps of greater importance), there is much greater incentive to keep the build costs down on the part of the savings institution.

Banks and such that lend funding have every incentive to see the costs escalate, as their income from the project is directly related to the cost of borrowing; whereas the savings institution investing equity capital has the exact opposite incentive to keep the build costs within original limits.

A very good example of the negative effects of borrowed funding for a major construction project was the construction of the Channel Tunnel here in Europe.


Flawed forecasts, management mistakes and bad luck turned the Eurotunnel dream into a financial nightmare for the investors and banks who funded the project entirely from private money.

Heavy losses - £500m last year, £1bn the year before - have meant that Eurotunnel has been unable to meet even its interest bills, much less repay capital.

As a result, Eurotunnel has been burdened with mounting debts, like straws being loaded on a donkey's back.

Inevitably, the company has buckled under the weight of its financial obligations.
With debts now standing at about £6.5bn, Eurotunnel can until the end of this year service interest charges with IOUs. But thereafter the borrowing terms change and it must pay in cash.

<SUP></SUP>
http://news.bbc.co.uk/1/hi/business/4088868.stm