Normally I pick my blog posts from other bloggers or news sources providing insights not generally found elsewhere. But this time I’m reposting an article by an investment advisor. And based on evidence that I’ve found elsewhere, his main theme is correct, namely that is that the U.S. is broke, and that all hell will break loose if and when our economy falls into deflation. (I have added the “if” because runaway inflation is the other possibility and would be just as devastating but for different reasons.) Read this investment advisor’s description of runaway deflation and prepare yourselves. One thing is for sure, when the criminal big banks crash this time the government can no longer bail them out. So they will do what happened in Cyprus a couple years ago, that is, do “bail IN”s, which is a cute euphemism for stealing the money of their depositors. So if, dear reader, you have a savings account in any of the big banks, take you money out NOW and put it in a credit union -- or even under you mattress – before it is too late.

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Deflation picking up even more momentum ...

by Larry Edelson

Dear Subscriber,

Some analysts seem to think inflation is making a big comeback. Their reasoning: Interest rates have started to move higher, hence, inflation is lurking out there.

But they're clueless. They are confusing declining bond prices (rising interest rates) with normal times — and the world is about as far away from normal times as I am of becoming the next Pope.

Yes, interest rates all over the globe are starting to rise, and bond prices are sliding — most notably in Europe.

But that doesn't mean inflation is coming back. It's not. In a minute I'll show you the evidence as to why.

Interest rates are rising and bond prices are falling because the SOVEREIGN DEBT CRISIS is rapidly approaching.

That final point in time — the final reckoning — where the majority of investors begin to realize that Europe, Japan and the biggest debtor of them all, the U.S., are patently bankrupt … will never make good on their debts …

And instead, will do everything they can to chase, track, tax and seize your wealth to help them keep their heads above water.

Government spying: They'll do everything
they can to chase, track, tax and seize your
wealth to help them keep their heads above water.

Which is precisely why the Western socialist governments of this world — Europe, Japan and the U.S. — are all acting like caged animals ...

 Raising taxes, throughout Europe ... a new proposed second hike in the sales tax in Japan ... Obamacare here and behind the curtain in Washington, even more income tax hikes coming.

 Spying on citizens — yes, it's still going on. To track your money, to tax it more, and not too far in the future, to nationalize and confiscate it.

 Enacting extensive capital controls throughout Europe, where in France, for instance, you can no longer conduct any business in cash, and where you cannot take out of the bank more than 1,000 euros at a time. Similar controls exist now in Greece, Cyprus, Italy and even Spain.

 Where economists like Harvard University's Ken Rogoff and Citibank's Willem Buiter are traipsing the globe telling governments it's time to abolish cash and replace it with electronic currency.

 And where governments are now so wrought with troubles that financial repression of their people is not enough and instead, they are moving to distract them by playing games with other countries.  Hence, the rising tide of wars around the world, from terrorism to outright international conflict. Where just recently Ukraine's President Petro Poroshenko warned his country to "prepare for a full-scale Russian invasion." 

Where China is ready to duke it out with Japan and other countries, including the United States, in the South China Sea.

Where the number of separatist, anarchist and neo-Nazi groups in Europe are at an all-time high.

This is NOT the stuff of solid economic growth and certainly not a formula for inflation.

To the contrary, it is the stuff of dying empires ...

Of deflationary contractions. Of hoarding and burying wealth.

So much so that stock and commodity market trading volumes are less than half what they were in 2007 and 2008.

Yes, all these things will eventually positively impact gold. But not because of inflation. But because empires of the West are dying.

If you don't believe the picture I paint for you above, as to the evidence that there's no inflation, all you have to do then is simply look at the facts on the ground ...

 The year-over-year change in U.S. retail sales peaked way back in July 2011, and has been declining ever since. 

 U.S. consumer confidence, measured by the widely respected polls of the University of Michigan, remains well below its peak in 1999.

 Quarterly U.S. GDP has been in declining mode since 1999 and this year's first quarter GDP declined a whopping 0.7 percent.

 U.S. industrial production has declined since June 2010, with factory orders plummeting for eight straight months including a 0.4 percent decline in April.

Those are just the gross economic figures that support the fact that there is no inflation on the horizon. Now turn to the markets, and the most inflation-sensitive of them all... commodities.

 Gold has now broken support at the $1,180 level. Its next move, perhaps after a bounce or two: below $1,100.

 Silver too is cracking, now dangerously positioned to fall below $14.50, then even lower.

 Copper is starting to slide once again, falling to the $2.70 level, with lower prices ahead.

 Platinum and palladium, both weak at the knees.

 Oil, unable to get back above $65 a barrel, and now poised to move lower again. Natural gas, barely above multi-year lows.

 The grain markets, all weak. Soybeans, sliding. Corn and wheat, ready to slide again from multi-month and multi-year highs. 

 Coffee, cocoa, sugar, all looking very weak.

 And more.

The U.S. dollar, near multi-year highs and about to take off like a rocket again. In itself, a major deflationary warning.

Prepare for inflation, as these blind analysts would have you do, and you will be on the wrong side of the markets.

Prepare for more deflation with inverse commodity ETFs and the like, and by staying invested in mostly U.S. dollars where they will buy you more and more over the next several months ...

And you will protect and grow your wealth.

And last, but certainly not least, when the time is right — not too far off in the future ...

You will be able to buy gold and silver on the cheap, when everyone else is dumping them ...

Not recognizing that the real crisis is in government, which is when gold and silver truly shine.

I rest my case.

Best wishes and stay safe …

Larry

For my French friends and relatives: Nobel Prize winning economist Paul Krugman hadn't "...paid much attention to François Hollande, the president of France, since it became clear that he wasn’t going to break with Europe’s destructive, austerity-minded policy orthodoxy. But now he has done something truly scandalous."

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The Opinion Pages | OP-ED COLUMNIST

Scandal in France

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JAN. 16, 2014

I haven’t paid much attention to François Hollande, the president of France, since it became clear that he wasn’t going to break with Europe’s destructive, austerity-minded policy orthodoxy. But now he has done something truly scandalous.

I am not, of course, talking about his alleged affair with an actress, which, even if true, is neither surprising (hey, it’s France) nor disturbing. No, what’s shocking is his embrace of discredited right-wing economic doctrines. It’s a reminder that Europe’s ongoing economic woes can’t be attributed solely to the bad ideas of the right. Yes, callous, wrongheaded conservatives have been driving policy, but they have been abetted and enabled by spineless, muddleheaded politicians on the moderate left.

Right now, Europe seems to be emerging from its double-dip recession and growing a bit. But this slight uptick follows years of disastrous performance. How disastrous? Consider: By 1936, seven years into the Great Depression, much of Europe was growing rapidly, with real G.D.P. per capita steadily reaching new highs. By contrast, European real G.D.P. per capita today is still well below its 2007 peak — and rising slowly at best.

Doing worse than you did in the Great Depression is, one might say, a remarkable achievement. How did the Europeans pull it off? Well, in the 1930s most European countries eventually abandoned economic orthodoxy: They went off the gold standard; they stopped trying to balance their budgets; and some of them began large military buildups that had the side effect of providing economic stimulus. The result was a strong recovery from 1933 onward.

Modern Europe is a much better place, morally, politically, and in human terms. A shared commitment to democracy has brought durable peace; social safety nets have limited the suffering from high unemployment; coordinated action has contained the threat of financial collapse. Unfortunately, the Continent’s success in avoiding disaster has had the side effect of letting governments cling to orthodox policies. Nobody has left the euro, even though it’s a monetary straitjacket. With no need to boost military spending, nobody has broken with fiscal austerity. Everyone is doing the safe, supposedly responsible thing — and the slump persists.

In this depressed and depressing landscape, France isn’t an especially bad performer. Obviously it has lagged behind Germany, which has been buoyed by its formidable export sector. But French performance has been better than that of most other European nations. And I’m not just talking about the debt-crisis countries. French growth has outpaced that of such pillars of orthodoxy as Finland and the Netherlands.

It’s true that the latest data show France failing to share in Europe’s general uptick. Most observers, including the International Monetary Fund, attribute this recent weakness largely to austerity policies. But now Mr. Hollande has spoken up about his plans to change France’s course — and it’s hard not to feel a sense of despair.

For Mr. Hollande, in announcing his intention to reduce taxes on businesses while cutting (unspecified) spending to offset the cost, declared, “It is upon supply that we need to act,” and he further declared that “supply actually creates demand.”

Oh, boy. That echoes, almost verbatim, the long-debunked fallacy known as Say’s Law — the claim that overall shortfalls in demand can’t happen, because people have to spend their income on something. This just isn’t true, and it’s very much not true as a practical matter at the beginning of 2014. All the evidence says that France is awash in productive resources, both labor and capital, that are sitting idle because demand is inadequate. For proof, one need only look at inflation, which is sliding fast. Indeed, both France and Europe as a whole are getting dangerously close to Japan-style deflation.

So what’s the significance of the fact that, at this of all times, Mr. Hollande has adopted this discredited doctrine?

As I said, it’s a sign of the haplessness of the European center-left. For four years, Europe has been in the grip of austerity fever, with mostly disastrous results; it’s telling that the current slight upturn is being hailed as if it were a policy triumph. Given the hardship these policies have inflicted, you might have expected left-of-center politicians to argue strenuously for a change in course. Yet everywhere in Europe, the center-left has at best (for example, in Britain) offered weak, halfhearted criticism, and often simply cringed in submission.

When Mr. Hollande became leader of the second-ranked euro economy, some of us hoped that he might take a stand. Instead, he fell into the usual cringe — a cringe that has now turned into intellectual collapse. And Europe’s second depression goes on and on.

____________

A version of this op-ed appears in print on January 17, 2014, on page A25 of the New York edition with the headline: Scandal in France. Order Reprints|Today's Paper|Subscribe

Male Economists from Academia Keep Saying that the Government Is Doing All the Wrong Things to Revive the Economy. Ever Wonder What a Businesswoman's Slant on These Matters Might Be?

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theREALnews network (link here)

Capitalism and QE2 (Pt. 1)
Naked Capitalism's Yves Smith: Fed's $600 B cash injection may do no more than increase banker profits November 9, 2010



Banks to Cash-In Again on New Fed Plan (Pt.2)
Banks to Cash-In Again on New Fed Plan Pt.2 with Naked Capitalism's Yves Smith November 10, 2010

Bio

Yves Smith has written the popular and trenchant financial blog "Naked Capitalism" since 2006.

Yves has spent more than 25 years in the financial services industry and currently heads Aurora Advisors, a New York-based management consulting firm specializing in corporate finance advisory and financial services. Prior experience includes Goldman Sachs (in corporate finance), McKinsey & Co., and Sumitomo Bank (as head of mergers and acquisitions). Yves has written for publications in the United States and Australia, including The New York Times, The Christian Science Monitor, Slate, The Conference Board Review, Institutional Investor, The Daily Deal and the Australian Financial Review. Yves is a graduate of Harvard College and Harvard Business School.

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Will the U.S. Go the Way of Japan?

Consumer Price Index: Change from Previous Year

The Winds of Deflation

By Robert Reich, Robert Reich's Blog
18 September 10

Three economic reports today (Friday) that should sound warning bells about deflation.

1. The Labor Department reports that consumer prices are essentially flat. Compared to August 2009, prices are up 1.1 percent. That's only slightly lower than the 1.2 percent year-on-year rise in July. Excluding volatile food and energy, however, consumer prices in August were 0.9 percent higher than a year earlier. That's below the Fed's informal inflation target of between 1.5 percent and 2.0 percent.

2. In a separate report, the Labor Department said real average weekly earnings were unchanged in August from July, as both the average work week and hourly earnings were flat.

3. The Thomson Reuters/University of Michigan September reading of consumer confidence shows consumers more pessimistic in September than in August. In fact, consumer sentiment is the lowest since August 2009.

Put the three together and you have what could be a recipe for deflation: Flat consumer prices, weekly earnings, and hours, coupled with increased pessimism about where the economy is heading.

Consumers aren't buying. They're acting rationally. Their debt load is still huge, they're worried about keeping their jobs, they know they have to tighten belts, and they're justifiably worried about the future.

But for the nation as a whole, it spells even more trouble. If consumers hold back even more, prices will start dropping. When and if they do, consumers will hold back even more in anticipation of still lower prices. That means more layoffs and less hiring.

It's a vicious cycle. And once deflation sets in, it's hard to reverse. Just ask Japan.

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including "The Work of Nations," "Locked in the Cabinet" and "Supercapitalism." His upcoming book, "AFTERSHOCK: The Next Economy and America's Future," is due out in mid-September. His "Marketplace" commentaries can be found on publicradio.com and iTunes.

Paul Craig Roberts argues that both the left-leaning Keynesian economists and those on the right who he terms the "let them eat cake school of economics" haven’t a clue as to how to finance the U.S. deficit.

Death By Globalism

Economists haven’t a clue

By Paul Craig Roberts

September 01, 2010 "Information Clearing House" ---Have economists made themselves irrelevant? If you have any doubts, have a look at the current issue of the magazine, The International Economy, a slick endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times and Washington Post, both of which declare the magazine to be “ahead of the curve.”

The main feature of the current issue is “The Great Stimulus Debate.” Is the Obama fiscal stimulus helping the economy or hindering it?

Princeton economics professor and New York Times columnist Paul Krugman and Moody’s Analytics chief economist Mark Zandi represent the Keynesian view that government deficit spending is needed to lift the economy out of recession. Zandi declares that thanks to the fiscal stimulus, “The economy has made enormous progress since early 2009,” an opinion shared by the President’s Council of Economic Advisors and the Congressional Budget Office.

The opposite view, associated with Harvard economics professor Robert Barro and with European economists, such as Francesco Giavazzi and Marco Pagano and the European Central Bank, is that government budget surpluses achieved by cutting government spending spur the economy by reducing the ratio of debt to Gross Domestic Product. This is the “let them eat cake school of economics.”

Barro says that fiscal stimulus has no effect, because people anticipate the future tax increases implied by government deficits and increase their personal savings to offset the added government debt. Giavazzi and Pagano reason that since fiscal stimulus does not expand the economy, fiscal austerity consisting of higher taxes and reduced government spending could be the cure for unemployment.

If one overlooks the real world and the need of life for sustenance, one can become engrossed in this debate. However, the minute one looks out the window upon the world, one realizes that cutting Social Security, Medicare, Medicaid, food stamps, and housing subsidies when 15 million Americans have lost jobs, medical coverage, and homes is a certain path to death by starvation, curable diseases, and exposure, and the loss of the productive labor inputs from 15 million people. Although some proponents of this anti-Keynesian policy deny that it results in social upheaval, Gerald Celente’s observation is closer to the mark: “When people have nothing left to lose, they lose it.”

The Krugman Keynesian school is just as deluded. Neither side in “The Great Stimulus Debate” has a clue that the problem for the U.S. is that a large chunk of U.S. GDP and the jobs, incomes, and careers associated with it, have been moved offshore and given to Chinese, Indians, and others with low wage rates. Profits have soared on Wall Street, while job prospects for the middle class have been eliminated.

The offshoring of American jobs resulted from (1) Wall Street pressures for “higher shareholder returns,” that is, for more profits, and from (2) no-think economists, such as the ones engaged in the debate over fiscal stimulus, who mistakenly associated globalism with free trade instead of with its antithesis--the pursuit of lowest factor cost abroad or absolute advantage, the opposite of comparative advantage, which is the basis for free trade theory. Even Krugman, who has some credentials as a trade theorist has fallen for the equation of globalism with free trade.

As economists assume, incorrectly according to the latest trade theory by Ralph Gomory and William Baumol, that free trade is always mutually beneficial, economists have failed to examine the devastatingly harmful effects of offshoring. The more intelligent among them who point it out are dismissed as “protectionists.”

The reason fiscal stimulus cannot rescue the U.S. economy has nothing to do with the difference between Barro and Krugman. It has to do with the fact that a large percentage of high-productivity, high-value-added jobs and the middle class incomes and careers associated with them have been given to foreigners. What used to be U.S. GDP is now Chinese, Indian, and other country GDP.

When the jobs have been shipped overseas, fiscal stimulus does not call workers back to work in order to meet the rising consumer demand. If fiscal stimulus has any effect, it stimulates employment in China and India.

The “let them eat cake school” is equally off the mark. As investment, research, development, etc., have been moved offshore, cutting entitlements simply drives the domestic population deeper in the ground. Americans cannot pay their mortgages, car payments, tuition, utility bills, or for that matter, any bill, based on Chinese and Indian pay scales. Therefore, Americans are priced out of the labor market and become dependencies of the federal budget. “Fiscal consolidation” means writing off large numbers of humans.

During the Great Depression, many wage and salary earners were new members of the labor force arriving from family farms, where many parents and grandparents still supported themselves. When their city jobs disappeared, many could return to the farm.

Today farming is in the hands of agri-business. There are no farms to which the unemployed can return.

The “let them eat cake school” never mentions the one point in its favor. The U.S., with all its huffed up power and importance, depends on the U.S. dollar as reserve currency. It is this role of the dollar that allows America to pay for its imports in its own currency.

For a country whose trade is as unbalanced as America’s, this privilege is what keeps the country afloat.

The threats to the dollar’s role are the budget and trade deficits. Both are so large and have accumulated for so long that the prospect of making good on them has evaporated. As I have written for a number of years, the U.S. is so dependent on the dollar as reserve currency that it must have as its main policy goal to preserve that role.

Otherwise, the U.S., an import-dependent country, will be unable to pay for its excess of imports over its exports.

“Fiscal consolidation,” the new term for austerity, could save the dollar. However, unless starvation, homelessness and social upheaval are the goals, the austerity must fall on the military budget. America cannot afford its multi-trillion dollar wars that serve only to enrich those invested in the armaments industries. The U.S. cannot afford the neoconservative dream of world hegemony and a conquered Middle East open to Israeli colonization.

Is anyone surprised that not a single proponent of the “let them eat cake school” mentions cutting military spending? Entitlements, despite the fact that they are paid for by earmarked taxes and have been in surplus since the Reagan administration, are always what economists put on the chopping bloc.

Where do the two schools stand on inflation vs. deflation? We don’t have to worry. Martin Feldstein, one of America’s pre-eminent economist says: “The good news is that investors should worry about neither.” His explanation epitomizes the insouciance of American economists.

Feldstein says that there cannot be inflation because of the high rate of unemployment and the low rate of capacity utilization. Thus, “there is little upward pressure on wages and prices in the United States.” Moreover, “the recent rise in the value of the dollar relative to the euro and British pound helps by reducing import costs.”

As for deflation, no risk there either. The huge deficits prevent deflation, “so the good news is that the possibility of significant inflation or deflation during the next few years is low on the list of economic risks faced by the U.S. economy and by financial investors.”

What we have in front of us is an unaware economics profession. There may be some initial period of deflation as stock and housing prices decline with the economy, which is headed down and not up. The deflation will be short lived, because as the government’s deficit rises with the declining economy, the prospect of financing a $2 trillion annual deficit evaporates once individual investors have completed their flight from the stock market into “safe” government bonds, once the hyped Greek, Spanish, and Irish crises have driven investors out of euros into dollars, and once the banks’ excess reserves created by the bailout have been used up in the purchase of Treasuries.

Then what finances the deficit? Don’t look for an answer from either side of The Great Stimulus Debate. They haven’t a clue despite the fact that the answer is obvious.

The Federal Reserve will monetize the federal government deficit. The result will be high inflation, possibly hyper-inflation and high unemployment simultaneously.

The no-think economics establishment has no policy response for economic armageddon, assuming they are even capable of recognizing it.

Economists who have spent their professional lives rationalizing “globalism” as good for America have no idea of the disaster that they have wrought.

Dr. Roberts was educated at Georgia Tech, the University of Virginia, the University of California, Berkeley, and Oxford University where he was a member of Merton College.. He is the author or coauthor of 9 books and has published many articles in journals of scholarship. He served in the Congressional staff and was Assistant Secretary of the U.S. Treasury. He was awarded the Treasury’s Silver Medal for “outstanding contributions to the formulation of U.S. economic policy.” In 1987 the President of France recognized him as “the artisan of a renewal of economic science and policy” and awarded him the Legion of Honor.

Roberts was associate editor of the Wall Street Journal and columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He was Senior Research Fellow at the Hoover Institution, Stanford University, and William E. Simon Chair of Political Economy, Center for Strategic and International Studies, Georgetown University. He has been a columnist for French, German, and Italian newspapers. Today he is followed worldwide over the Internet.

Obama plan to create 3 ½ million jobs by late 2010; but we’re now 8 ½ million jobs in the hole, and the states are firing TEACHERS!

New York Times column

July 3, 2009

Op-Ed Columnist

That ’30s Show

By PAUL KRUGMAN

O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does the president know that?

Let’s do the math.

Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8 ½ million jobs in the hole.

And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?

Wait — there’s more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.

So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on. Do you remember the administration’s plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

All of this is depressingly familiar to anyone who has studied economic policy in the 1930s. Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily — but it’s up to the president and his economic team to ensure that things are different this time. President Obama and his officials need to ramp up their efforts, starting with a plan to make the stimulus bigger.

Just to be clear, I’m well aware of how difficult it will be to get such a plan enacted.

There won’t be any cooperation from Republican leaders, who have settled on a strategy of total opposition, unconstrained by facts or logic. Indeed, these leaders responded to the latest job numbers by proclaiming the failure of the Obama economic plan. That’s ludicrous, of course. The administration warned from the beginning that it would be several quarters before the plan had any major positive effects. But that didn’t stop the chairman of the Republican Study Committee from issuing a statement demanding: “Where are the jobs?”

It’s also not clear whether the administration will get much help from Senate “centrists,” who partially eviscerated the original stimulus plan by demanding cuts in aid to state and local governments — aid that, as we’re now seeing, was desperately needed. I’d like to think that some of these centrists are feeling remorse, but if they are, I haven’t seen any evidence to that effect.

And as an economist, I’d add that many members of my profession are playing a distinctly unhelpful role.

It has been a rude shock to see so many economists with good reputations recycling old fallacies — like the claim that any rise in government spending automatically displaces an equal amount of private spending, even when there is mass unemployment — and lending their names to grossly exaggerated claims about the evils of short-run budget deficits. (Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.)

Also, as in the 1930s, the opponents of action are peddling scare stories about inflation even as deflation looms.

So getting another round of stimulus will be difficult. But it’s essential.

Obama administration economists understand the stakes. Indeed, just a few weeks ago, Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937” — the year that F.D.R. gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda.

What I don’t know is whether the administration has faced up to the inadequacy of what it has done so far.

So here’s my message to the president: You need to get both your economic team and your political people working on additional stimulus, now. Because if you don’t, you’ll soon be facing your own personal 1937.