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Sunday, July 27, 2014

You feel poorer because you are poorer

This proves that various "recovery packages" which amount to tens of trillions of issued credit and trillions in federal government spending were all predicated on a lie. Just as the money nominally spent to "save" the household sector went directly to the mortgage banks as housing prices continued to plunge, the money that was supposed to "stimulate" the economy stimulated nothing but Wall Street and the bottom lines of the financial institutions. Notice that this supports what both Karl Denninger and I have been saying for years: there has been ZERO REAL ECONOMIC GROWTH in the USA for more than 30 years.

It's very simple to see. Just compare the increase in real GDP to the increase in credit. Is the ratio above or below 1.0? If the growth in the amount of credit is greater, then there has been no real economic growth. Since GDP is measured in monetary terms, this means the nominal growth is merely the increase in the number of promises to pay in the future chasing each other around.

That's why the infrastructure is crumbling. That's why fewer people are working. That's why you feel stressed. American median wealth has substantially declined even as the amount of debt has skyrocketed. The Samuelsonians claim this doesn't matter, because Peter still owes Paul. But both common sense as well as the wealth statistics demonstrate otherwise.

Key quote: "a full 25% of American Households have a net worth of just $3,200; and that 5% (1 out of 20) households has a negative net worth of -$27,416!"

As a youth, I never understood the Biblical concept of a 50-year debt jubilee. It sounded so ignorant and prehistoric. Now, as an adult trained in various schools of economics and having witnessed two major boom-bust peaks in Japan and the United States, I tend to regard it as one more example of the divine inspiration of Scripture.


This chart from Steve Sailer might put the matter more starkly to those who prefer numbers to pictures. Note that the 27 million additional immigrants who entered the USA from 2003 to 2013 have not, contrary to the insistence of neo-classical and Samuelsonian economists, enriched the economy or the native population.

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48 Comments:

Anonymous FUBAR Nation Ben July 27, 2014 9:24 AM  

The only areas of the economy that are booming are high end real estate and the stock market. They are booming because rich foreigners as well as American ones need to hide their cash from ever rising global taxes and regulations (see FATCA). Governments are becoming desperate to take as much money as they can to pay for the pensions and all the other insolvent programs.

Look for a major uptrend in the stock market over the coming year because there isn't really anywhere else to park big money and US bonds are slowly losing their appeal.

Anonymous Johnny July 27, 2014 9:56 AM  

This had me think of your "that my read of the situation is correct" taqqiya article:

moderators have been forced to censor 95% of comments made by French users
via the In France, Most Comments on Gaza Conflict Yanked slashdot article

Blogger Mr.MantraMan July 27, 2014 9:58 AM  

Trickle Down Keynesian economics.

Blogger James Dixon July 27, 2014 10:03 AM  

> "a full 25% of American Households have a net worth of just $3,200; and that 5% (1 out of 20) households has a negative net worth of -$27,416!"

Ouch, that it bad.

I've worked for 33 of the past 34 years. My starting salary out of college was less than $20K (BLS says $20K is equivalent to $57850 today). My salary finally topped $60K about 5 years ago, so I've only done slightly better than keeping pace with inflation. My wife hasn't worked since we got married. And yet our net worth shows us at being over the 75% level on that chart.

This does not bode well for the future at all. Not that this is news to anyone who's been paying attention.

Anonymous DF July 27, 2014 10:04 AM  

"As a youth, I never understood the Biblical concept of a 50-year debt jubilee. It sounded so ignorant and prehistoric. Now, as an adult trained in various schools of economics and having witnessed two major boom-bust peaks in Japan and the United States, I tend to regard it as one more example of the divine inspiration of Scripture."

Well said. A experienced a similar epiphany recently after reading the following work:
http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290

I found it an enlightening anthropological perspective on the origins of money in institutionalized debt-peonage. The author is convincingly critical of the textbook account of money emerging from barter and the dual coincidence of wants, and makes a solid case for the existence of debt jubilees into the present. The argument is dimmed somewhat by a tolerable amount of Marxist anti-capitalist academic rhetoric, unfortunately.

Anonymous harry12 July 27, 2014 10:22 AM  

.
Wifey asked me if I am going to vote this coming election. My answer: As there is a local tax increase wish upon the ballet, it is my duty to vote NO.
.

Blogger Positive Dennis July 27, 2014 10:22 AM  

Debt was forgiven evey seven years not 50. Every 50 years all agricultural land was returned to the original family owners.

Blogger Positive Dennis July 27, 2014 10:23 AM  

Houses were not returned although there was a redemption period. Grazing land was held in common.

OpenID simplytimothy July 27, 2014 10:23 AM  

A reason this is a problem* is the lack of competition in currency--that lack of competition is by law. Our fair land has had many currencies in the past and we should not be enamored of this fast becoming worthless U.S. Dollar.


*I agree with Ann Barnhardt that the problem is that "(they) are no longer the gold". That dilution and transfer of wealth is the result of well-dressed men and women, paid from our labor, stealing from us and thinking themselves better than us. Much economic analysis is the precise measurement of the result of that moral failing and/or the pointing out of it (Which is what Vox and Denninger do quite well).

Anonymous FUBAR Nation Ben July 27, 2014 10:33 AM  

Vox, you called the gold bull market in 2002. What are you predicting now?

Blogger Mr.MantraMan July 27, 2014 11:09 AM  

Karl is brilliant and all but don't bet your farms on all his conclusions. Eventually all this will crater, when is beyond are capabilities to prognosticate, unless you know the shysters are about to pull the rug out from one of their conspirators like the Lehman Brothers.

His call on MH-17 is part ass clownery as well, Ukrainian army and mercenary units had the capabilities for high altitude AA all around that area, and Karl never asks why, he plainly accepts the facts because the Russians had taken down aircraft he extrapolates that if they can take down military aircraft at tactical altitudes they can take down high flying civilian aircraft as well.

But that is just representative of Karl and his logic, its a high powered train going one way and one way only.

Blogger Robert What? July 27, 2014 11:22 AM  

Just wondering - when Bernanke did all the QEs - did he really believe it was going to help the economy? Or did he know that it was going to go to cronies and he just pretended to the public that it was going to help the economy? Meaning is he just misguided or actually evil? (Not that it makes any difference in the results) Any speculation?

OpenID simplytimothy July 27, 2014 11:36 AM  

Meaning is he just misguided or actually evil?

I vote evil--in the mundane sense that we stubbornly cling to our pride--which is an evil thing.

Greenspan (previously part of Ayn Rand's inner circle) got the ball rolling by abandoning sound money and then lying about it through obfuscation.

Contrast that with Volker who realized his mistake and did an about face when he realized his theories where wrong.

That's my speculation...free of charge (:


Anonymous 11B July 27, 2014 11:41 AM  

But that is just representative of Karl and his logic, its a high powered train going one way and one way only.

Yeah, ditto this on his position on Netflix (NFLX). I am glad I don't take investment advice from him.

Anonymous Roundtine July 27, 2014 11:52 AM  

I found it an enlightening anthropological perspective on the origins of money in institutionalized debt-peonage.

It is a very good counterweight to the economics "just so story" of the origins of money. The Marxism doesn't get bad until the last chapters and most history books are unable to remain objective once the present comes into sight. I thought the biggest error was how he closes by saying a new age of credit is upon us, when he really makes a good case that credit is the original money and the current economy might be the most heavily reliant on credit since before the creation of money.

Anonymous VD July 27, 2014 12:18 PM  

Just wondering - when Bernanke did all the QEs - did he really believe it was going to help the economy? Or did he know that it was going to go to cronies and he just pretended to the public that it was going to help the economy?

The latter. As evidence, consider his speeches in 2009 when he talks about helping homeowners. What he did to "help" them could only help a few of them incidentally. It was a straight-out giveaway to the mortgage banks. QE was never going to help, because, as Karl, myself, and numerous others pointed out, it could not help.

He's not an idiot. I've read his book on the Great Depression and some of it was over my head. But he's not as good at snowing people as, for example, Greenspan was. Of course, it's easier to look good during the boom phase. Bernanke has come out of it surprisingly well considering he was there for the first part of the bust.

Blogger Retrenched July 27, 2014 12:49 PM  

Let's see... encourage young people to take out tens of thousands of dollars of student loan debt, while bringing in immigrants to do the jobs that those young people were supposedly going to get with those (now worthless) degrees.

Yeah, that looks sustainable.

Blogger Bard July 27, 2014 12:59 PM  

Did we really have 27 million immigrants in the last 10 years? I had no idea it was that high. Damn, I usually stay on top of things better than that.

Fed increases money supply by creating debt out of thin air. Is my understanding correct?

How the hell can you create growth by issuing more debt?

Blogger David July 27, 2014 1:06 PM  

Today's ocean of IOU's is someone's debt, another's asset.

In the event of a debt jubilee or any other repudiation, including a spontaneous stampede toward higher interest rates (indicating collapsing trust in the ocean of IOU trustworthiness), lots of folks who think their future income streams make them wealthy will see their wealth collapse. This includes every pension and retirement system.

The advantage of an announced, recurring, scheduled jubilee is that no one would be stupid enough to lend in the quantity we have today. Wealth in the USA and elsewhere is a skyscraper of playing cards glued together with unprecedented, blind trust and herd thinking.

It is misplaced trust in the state and its "experts" that has allowed this catastrophe to get baked into the cake.

Blogger David July 27, 2014 1:14 PM  

Given all the overt and occult rehypothecation in debt markets, one has to wonder how many paper claims exist for either the same underlying physical capital or claims on "capital" that doesn't even exist...

When this grand trend reverses, a full reconciliation of that question seems inevitable.

Who will end up holding enforceable title to what land, plant & equipment exists? Or will the West all follow Argentina's lead and adopt one disastrous totalitarian socialist redistribution scheme after another until all that's left are destroyed factories and polluted land?

Blogger Bard July 27, 2014 1:17 PM  

Debt is the asset. They will nationalize the pensions through confiscation. As a source of revenue and to temporarily keep the house of cards together. The debt is terminal. That is why everyone, including myself, are buying real assets. We lost the purchasing power of the dollar already, but I am hedging against the dump.

Read a very interesting article the other day about how God has been using the 7 year cycles to bring more economic heat. Probably for not honoring the jubilee cycle. 2015 is 7 years since the 08 crisis.

Blogger Bard July 27, 2014 1:24 PM  

everyone...is

Anonymous cash July 27, 2014 1:45 PM  

Interesting. Although I don't think the dump is going to happen, I sure don't know for sure so hedging is smart.

What article was that? I would like to read it.

Blogger James Dixon July 27, 2014 1:45 PM  

> Who will end up holding enforceable title to what land, plant & equipment exists?

Mostly the government. What they will do with it becomes the interesting question.

Blogger James Dixon July 27, 2014 1:52 PM  

> What article was that? I would like to read it.

The graph seems to be from http://web.stanford.edu/group/scspi/_media/working_papers/pfeffer-danziger-schoeni_wealth-levels.pdf

Blogger David July 27, 2014 2:02 PM  

> mostly the government.

This is the Argentina path. They distribute it to maintain political power, generally dissipating its value in the process. This is like taking a factory from its owner and distributing its control to all the employees. In no time the factory produces nothing.

Blogger David July 27, 2014 2:08 PM  

Debt is high order claims on wealth. Bank accounts are debts, too (we owe you your $).

Cash is a lower order claim on wealth. Actual physical assets are actual wealth. The problem is that if higher order claims (debt) are extinguished, lower order claims that survive, e.g., cash, rise in the amount of real assets they can buy.

Cash may soon not be trash, despite having been so for 82 years.

Anonymous Cash July 27, 2014 2:52 PM  

The old saying "cash is king." Well it looks like the old king maybe coming back to reclaim his throne. Can soneone even put a price on the debt the bottom 5% is holding? If the people above them can't accumulate more than a couple paychecks over a life time I would think all that "money" disappears and cash becomes super king.

I personally like putting money with mutual life insurance companies at this moment. With the way things are looking, making 6% off of mortality expenses and having access to the cash from the safest financial companies in the world sounds like a good idea, Dave Ramsey be damned.

Blogger James Dixon July 27, 2014 3:11 PM  

> This is the Argentina path.

Pretty much, yes. I expect them to hand it out to the politically connected at pennies on the dollar. But I've been wrong before.

> With the way things are looking, making 6% off of mortality expenses and having access to the cash from the safest financial companies in the world sounds like a good idea, Dave Ramsey be damned.

You can get 5% from AT&T right now. Do you really think life insurance companies are safer than it is?

Anonymous Cash July 27, 2014 4:30 PM  

In a word. Yes.

I think At&t is a really good stock. But I give a strong mutual life insurer a better chance of paying a big dividend every year for the next 30 over any company involved in technology or communications. Also, there is a bunch of other benefits to a good, blended whole life policy. Esp for me being young and in good health. I also like to put away money away from Wall St. Whenever possible.

Anonymous The other skeptic July 27, 2014 5:06 PM  

As a youth, I never understood the Biblical concept of a 50-year debt jubilee. It sounded so ignorant and prehistoric. Now, as an adult trained in various schools of economics and having witnessed two major boom-bust peaks in Japan and the United States, I tend to regard it as one more example of the divine inspiration of Scripture.

It seems possible to me that the Jews recognized a long time ago that debt was bad for the Jewish community when used for too long within their community but good when used against non Jews.

As a result, they codified it in their Scripture.

Anonymous 11B July 27, 2014 5:46 PM  

Did we really have 27 million immigrants in the last 10 years? I had no idea it was that high. Damn, I usually stay on top of things better than that.

And McCain is talking about adding another 30 million over the next 10 years.

Anonymous Don July 27, 2014 6:28 PM  

I always thought I was the only nut who believed a jubilee was necessary. Everyone I have talked to about it at least considered the idea seriously.

OpenID simplytimothy July 27, 2014 6:50 PM  

And McCain is talking about adding another 30 million over the next 10 years.
I want to see McCain chained to the border until the fence is built.

Anonymous Idle McCain, riding the Straight Talk Express July 27, 2014 6:57 PM  

WHEN I WAS A PRISONER OF WAR

NOT ONE OF YOU HELPED ME!


I will let every single of those immigrants in to breath free, the freedom you denied me.

I am totally over it but I get a little EMOTIONAL SOMETIMES.

Anonymous A Visitor July 27, 2014 7:46 PM  

"Let's see... encourage young people to take out tens of thousands of dollars of student loan debt, while bringing in immigrants to do the jobs that those young people were supposedly going to get with those (now worthless) degrees.

Yeah, that looks sustainable."

That is the exact predicament facing many of my fellow Millenials right now.

"Did we really have 27 million immigrants in the last 10 years? I had no idea it was that high."

Yes! I remember when the west side of my city was unsafe but you still heard English being spoken. Now it's overrun with Mexicans and Nicaraguans. Remember, I'm 27. That all happened in the course of only twenty years.

"Or will the West all follow Argentina's lead and adopt one disastrous totalitarian socialist redistribution scheme after another until all that's left are destroyed factories and polluted land?"

I hope they won't. My aunt was (renounced it upon receiving American citizenship, as far as I know) an Argentine citizen. She hates Krichner, et. al. That never ends well for anyone.

"They will nationalize the pensions through confiscation" Barnhardt has already alluded to how this would happen here.

"And McCain is talking about adding another 30 million over the next 10 years." If Dear Leader's EA goes unchallenged, we'll have another 5 million amnestied by summer's end.

I knew something wasn't right (recently). It's no wonder then that this post makes me question the very necessity of working or doing anything productive at this point, as we've experienced no real growth longer than I've been alive.

Anonymous Will Best July 27, 2014 8:32 PM  

The old saying "cash is king." Well it looks like the old king maybe coming back to reclaim his throne. Can soneone even put a price on the debt the bottom 5% is holding? If the people above them can't accumulate more than a couple paychecks over a life time I would think all that "money" disappears and cash becomes super king.

Total net worth stats aren't particularly useful because they are not age delineated.

Median net worth of as of 2010 via Pew survey:
78-87 yr old: 207,500 (early Silent Generation)
68-77 yr old: 212,300 (late Silent)
58-67 yr old: 173,480 (early Boomer)
48-57 yr old: 110,870 (late Boomer)
38-47 yr old: 41,600 (Gen X)

I might also point out that what people are capable of doing, and what they choose to do are two different things. For example, while the boomers didn't save as much as their parents, they were perfectly capable of doing so. The result of that blunder is tracked quite nicely over at ZH whenever they show the job chart with the age breakdown.

Anonymous jay c July 27, 2014 9:12 PM  

Glad you're still reading my Twitter feed, Vox. I can't tell you how often I tweet or post only to discover you posted something similar around the same time.

I'm not actually saying you get all your best ideas from me. (Not denying it either.) Maybe there's just something in the ether.

Blogger David July 27, 2014 9:20 PM  

48-57 year old median net worth is <$111K?!

Yikes!

Blogger Lens Larque July 27, 2014 11:36 PM  

Hmm. You mean to say that pumping the dog's tail doesn't make it happy after all? JM Keynes: call your office.

Blogger LP 999/Eliza July 28, 2014 12:22 AM  

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Blogger LP 999/Eliza July 28, 2014 12:26 AM  

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Blogger LP 999/Eliza July 28, 2014 12:29 AM  

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Anonymous The Juicey Truth July 28, 2014 2:55 AM  

@Johnny moderators have been forced to censor 95% of comments made by French users

They're talking about the French mainstream media, just ignore it, the French do. They are zionist propaganda rags bought and paid for with public subsidies. For them anti-semite ranges from holocaust revisionism to "I don't think my rabbi's new hair cut quite suits him

a list of tax exemptions and other aid to French print media. And these days they get huge injections of cash (aide direct) on top.

€5 billion of direct and indirect subsidies from public money in 2013 and rising yearly.

Anonymous The Juicey Truth July 28, 2014 3:07 AM  

€5 billion of direct and indirect subsidies from public money in 2013 and rising yearly.

Just to be clear, that's €5 billion of public subsidies just for the year of 2013 (not cumulative) and the annual amount of the subsidies is increasing year-on-year.

Anonymous The Juicey Truth July 28, 2014 3:17 AM  

Damn, me again - it was cumulative for 2009-2011 but still pretty damn excessive.
(note to self - do not post before coffee)

Blogger James Dixon July 28, 2014 11:34 AM  

> Median net worth of as of 2010 via Pew survey:
78-87 yr old: 207,500 (early Silent Generation)
68-77 yr old: 212,300 (late Silent)
58-67 yr old: 173,480 (early Boomer)
48-57 yr old: 110,870 (late Boomer)
38-47 yr old: 41,600 (Gen X)

Nothing surprising there. Each 10 year generation is about 50-60K richer than the younger one, except for those in retirement who are drawing on their savings. That's a fairly normal savings rate of $5-6K/year.

Given that the money should be invested, it should actually be higher than that, but that just goes to show that real returns have been close to zero for the past 15 years or more.

Blogger James Dixon July 28, 2014 11:38 AM  

> In a word. Yes.

Well, that's how markets work. People who disagree invest their money differently. I wish you luck.

> I think At&t is a really good stock. But I give a strong mutual life insurer a better chance of paying a big dividend every year for the next 30 over any company involved in technology or communications.

I think you're overlooking the importance of AT&T to the NSA spying process. I expect that, like the big banks, they're too important to be allowed to fail.

> I also like to put away money away from Wall St. Whenever possible.

Where do you think the life insurance company invests the money you give them?

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