There are two schools of economic thought. Most common is Keynesian economics which have gotten us into the economic pickle we're in. Alan Greenspan, Ben Bernanke, Janet Yellen - all the Federal Reserve and Treasury wonks subscribe to Keynesian theory because, for governments, it's easy. Just print your way to prosperity. Never mind that by printing more and more bills you're diluting the value of the currency.
You and I, however, don't have the luxury of having a printing press to try printing our way out of debt. We live in the real world and it's the real world economy Trump is talking about when he says things are iffy. He is absolutely 100% right - about the stock market, the currencies and the rest of it.
In the real world you and I can't just print more money to pay off our debt. We have to keep our balance sheet in balance - assets and liabilities - and have a means of paying off the debt we acquire.
In the Keynesian world, you don't. That is the fundamental break-point and it's important for understanding the bigger picture.
For years the United States has been able to sell our treasury bills. Those are pledges that in exchange for a loan we will repay the money at a future date, plus interest. We were good with that because we were seen as a strong economy, solid as a rock with the full faith and credit.
Then things went south in the mid-2000s. The recession came along and everyone got nervous. China and the OPEC countries started grumbling. They don't like their currencies pegged to our dollar in the foreign exchange (FOREX where currencies are traded) world. Their currencies suffered by comparison because anyone who wanted to buy a 'strong' currency would invest in the dollar.
They started manipulating their currencies. The Yuan in particular. And they talked about changing the FOREX 'rules' so that OPEC would no longer sell its oil based on the value of the US dollar but on the Yuan or the Ruble.
So, without getting too far into the weeds, we are a Keynesian economy on which other economies are based through their various currencies. If we go under we will take many of the other world economies with us. The EU and the British pound will probably be badly hurt, but they are strong enough to survive. It's the other nations, to whom the US has sold treasury bills by the trillions, that will get 'killed'. If we go under, they will be holding stacks and stacks and stacks of worthless paper.
That is the risk here - that is why Trump is saying we are on the verge of a collapse.
At this point the United States is in general debt to the tune of about twenty trillion dollars.
Our REAL debt, though, including those entitlements you hear talk about, is closer to seventy trillion dollars. That is unsustainable - even under Keynesian theory because even under Keynesian economics, that is outstanding debt and if it's called... guess what happens to the almighty dollar?
We can't repay it. There's no way in a million years (literally) we can repay it. We would default and if we default on that debt, the entire world will follow. We will have zero credit and zero credibility. No one will want our money. No one will want to buy our debt - which is reflected in those treasury bills.
This morning, when I turned on the news, the talking heads were talking about their 'confusion' over Trump's statement. The 'economists are scratching their heads' was one line.
When most people hear the label 'economist' they think 'uber-smart know-it-all' regarding all things financial. What they lose sight of is the fact that before they are economists, those people are just people. They're not smarter than you or I. It's just that they just went to school and studied economics. Then they got a piece of parchment that says 'Economics'. They aren't necessarily smarter than the average bear. They just like numbers and their inter-relationships.
I like numbers, too. I like reading about money and currencies and politics and how they're all interrelated. So I pay attention to money and the markets - including gold and silver and the Baltic Dry Index (BDI).
That last is an important 'little' thing. It's an indicator of international shipping which means trade.
When China or South Korea needs to make a widget, they have to buy raw materials or parts from other places - no one country can produce all the elements that go into their widgets, so they import them. Containers are loaded up with boxes and bales and bags of widget parts. Those containers are loaded onto a ship and moved from here to there.
Once the widget is made - be it a laptop, a computer, a television or a toy, the finished good is loaded into another container and loaded onto another ship and shipped to wherever there are consumers willing and able to buy those finished goods.
This shipping is what the BDI tracks. If the BDI is high, there's a lot of movement - economies are trading money for goods and materials. If the BDI is low, that indicates a lot of those very expensive ships are sitting idle. Trade is not happening, no one is buying raw materials or shipping finished goods - and that's a sign of a weak world economy.
In the past couple of months, the BDI hit all time lows - and stayed there for weeks. Ships were sitting empty and idle in ports around the world. Even the Panama Canal has been affected - recently offering a 30% discount for ships passing through the canal.
Ship & Bunker, the trade magazine, has a recent article that advises against excitement over the recent surge in the utilization of hulls - 30% of ships are still sitting idle. Even though 70% of ships are in use, that 30% is still putting a heavy strain on shipping companies and their lenders - those ships still have debt on them and that debt has to be repaid.
http://shipandbunker.com/news/world/441019-dont-be-fooled-by-april-1-surge-in-baltic-dry-index-analyst-warns
That's one economic indicator. If goods aren't being bought and sold, money isn't being exchanged and that is not good for the world economy.
Closer to home, these economists are pointing at the "good" unemployment rate - the recent increase in jobs, even though the unemployment rate ticked up to 5% last week and will likely be adjusted higher in a week or ten days. That 5% is a completely pulled from thin air number, though. It's happy talk for the folks and here's why I say that.
This is a screenshot that I took from usdebtclock.org this morning:
http://usdebtclock.org/
Let's look a little closer at this, shall we?
In 2000 the median income - the average annual earnings per household across America - was $28,302. Today, April 4, 2016, the median income is $30,171 - just a little more than $14 per hour but they buying power of that $14 is much less than it was in 2000. Think back - in 2000 you could probably buy a nice lunch in most cities in America and have money left over from $10. Now I'd challenge you to find a nice lunch for less than $15 - that's inflation.
Based on the rate of inflation - generally considered to be an average of about 3% per year - median income should be $22.59 per hour now. But it's not. That screenshot is from just this morning and it's reflective of reality. So wages aren't exactly robust.
There is also the comparison between the "Official Unemployed" of 7,959,124 and the "Real Unemployed" of 15,592,681 - almost twice as many people are unemployed as the government says. Which puts the real unemployment rate closer to 10% than to the official number of 5%.
Don't take my word for this - just Google 'real unemployment rate'. Warning: look past the government sites - they have a vested interest in selling you snake oil, so look at CNBC, Bloomberg or one of the other financial sites. They're still to be taken with a grain of salt because they have a vested interest in painting a rosier picture than reality, but they're a bit more trustworthy.
In that screenshot are a few more esoteric indicators.
The number of uninsured - which indicates that there are more than forty million people who cannot afford the insurance premiums that they are required to pay under Obamacare. They're working but are caught between the rock and a hard place of their earnings and the cost of the insurance premiums. They earn too much to qualify for the government subsidy, but too little to be able to afford the premiums. People like me.
Consider your own situation because you're little different than your neighbors or friends. If you are doing better now than you were ten years ago, good for you - I'm thrilled. I'm willing to wager that you're not, though. How's your personal economy doing? How are your wages compared to ten years ago? Are you earning more now than you were ten years ago?
Those are the economic indicators that really matter. The stock market is manipulated - it's run by the investment houses and banks but it's controlled by the Federal Reserve (Central Bank that runs all of the world economies when you get down to brass tacks) and the US Treasury department. They have a little thing instituted during the early days of the 2007 / 2008 Recession.
Remember Quantitative Easing - QE and QE 1 and QE 2, etc? Well, that's part of it - it's called Permanent Open Market Operations (POMO).
To prevent the stock market from having wild swings as the markets change and people get confident or scared - pull their money or invest it - that POMO was put in place.
When the market drops significantly - more than a hundred points or so - the Treasury steps in. They infuse 'money' in the form of code (1's and 0's) to stabilize it. If it soars, they'll let it go because it looks good to the folks.
The real value of the DOW Jones, if it wasn't manipulated as it's been over the past ten years or so, would probably be in the range of 10,000 to 12,000 points. There is nothing supporting what you see when you look at the markets - there is no real intrinsic value and nothing in the fundamental net worth of those companies to support the current 17,500 level in the market.
Don't believe me? Well, first look up POMO. It's there in Google. Read about it (although I warn you: it's dry as dust and you'll probably want to throttle me for suggesting the read). Then do some research. Talk to a financial adviser you trust - one who's not selling you something because if he's your broker or if he's selling you something, he's got a vested interest in lying to you about it. After all, if you think that the DOW will head toward 30,000 wouldn't you buy?
So Donald isn't wrong. He might be premature, but he is not wrong because there is nothing supporting this economy. We're a lot like Wiley E. Coyote in the Bugs Bunny cartoons. As long as we don't look down, look for the underpinning that's holding us up, we're fine. Once we realize that we're treading on thin air... look out!
Do some reading and research. Talk to people knowledgeable about this stuff. Listen carefully to the talking heads who discuss stuff like this. The contradictions between what they say - the excuses they use - are so commonplace you'll soon realize the truth.
Best~
Philippa
Follow me on Twitter: https://twitter.com/PhilippaStories
No comments:
Post a Comment