| The term red pill and its opposite, blue pill, are pop culture terms that have become a common symbol for the choice between the blissful ignorance of illusion (blue) and embracing the sometimes painful truth of reality (red). |
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- Superior Biotechnology Leads to Superior Drugs
- The Delusion of Regulating Risk
- Talk of a Greek Exit Gets Louder
- Doug Casey on Taxes and Freedom, Part II
- Is Facebook the Rusty Hinge of the Stock Market?
- Fitch Downgrades Japan
- Doug Casey on Taxes and Freedom
- Greeks Run on Banks as Euro-Confidence Wanes
- To the Class of 2012
Marc Faber Warns Of Wealth Destruction Via Inflation, Deflation, Unrest
Marc Faber, the fund manager who publishes “The Gloom, Boom & Doom Report,” is warning of “massive wealth destruction” sometime “down the line,” citing unresolved financial excess accumulated globally over the past few decades.
Asked how much destruction he foresees, the Swiss investor told CNBC in an interview that some rich individuals could lose as much as 50 percent of their wealth.
Faber, a Barron’s Roundtable participant, believes the destruction come will in the form of high inflation, deflation and/or social unrest.
Inflation destroys wealth by eroding currencies’ purchasing power, while deflation does so by pushing down prices of financial assets. Social unrest, which can either cause or be a result of inflation/deflation, may also lead to destruction of physical assets such as buildings and stores.
“Maybe all of it will happen but at different times,” said Faber, one of several prominent commentators who expect monetary instability — the dual threat of inflation and deflation.
“People have this extraordinary view that inflation and deflation are opposites, but of course they’re not opposites at all. [The opposite] is monetary stability,” said Jonathan Ruffer, a fund manager who oversees about $19 billion.
Before the global financial crisis, the most dominant force of financial… Continue reading
Why Not Print More Money?
In the past we have jokingly discussed the creation of a Death Star as the way the world can save itself by printing an almost infinite amount of money to support growth. As almost everyone, especially the MMT crowd it seems, can plainly see, if printing some money is good (well it must be, markets are up) then printing more money must be better, right? Well, no (as we discussed in detail here). There are unintended consequences and as we pointed out recently, we are already seeing less and less effervescence in the real economy from QE’s impact and the spectre of the inflationary pressures that implicitly limit the ‘benefit’ of this action is nowhere more painful than in energy prices (and in fact the price of anything in relative limited supply as opposed to cash which is printed daily). Professor Antony Davies, of Duquesne, takes this subtle concept to task in this exceptionally straightforward 206-second video on money as an IOU and its solution to the caveman’s ills providing the background for why money’s inherent value is relinquished once it becomes printed en masse. Printing more money doesn’t make more goods and services appear, simply spreads the… Continue reading
There’s No Painless Way Out
Uncle Sam’s bills of almost $4tn per year relative to his income of just over $2tn means that he does what most American’s do – he borrows money – and it is this simple fact that underpins the reasoning that there is no painless way out of the mountain of debt that we have amassed over the last few decades. While none of this is new, the straightforward nature of this video’s message makes it hard to argue, from anything other than an ivory tower, that this supposed self-sustaining print-and/or-borrow-fest can go on forever. Paying off your mortgage with your credit card remains the clearest analogy of what is occurring and while the Mutually Assured Destruction case is made again and again for why the analogous credit-card-providers will never halt our limit, it seems increasingly clear that the fiat money fiasco has switched regimes to chaos rather than the apparent nominal calmness of the great moderation.
Consumer Spending Grows Faster Than Paychecks
WASHINGTON — U.S. consumers boosted their spending in February by the most in seven months, raising expectations for stronger growth at the start of the year.
Americans spent more even as their income barely grew. To make up the difference, many saved less.
Consumer spending rose 0.8 percent last month, the Commerce Department said Friday. The biggest increase since July coincided with the best three-month hiring stretch in two years.
The jump in consumer spending helped Wall Street close out its best first quarter since 1998. More spending also led economists to upwardly revise their economic growth estimates for the January-March quarter.
Paul Dales, an economist at Capital Economics, now expects annual growth for the first quarter to be around 2.5 percent, compared with earlier estimates of about 2 percent. Consumer spending drives roughly 70 percent of economic activity.
Some of the higher spending last month reflected surging gas prices. But consumers spent more on other goods and services, too. After excluding inflation, which was due mainly to gas prices, spending rose a solid 0.5 percent.
Many Americans are spending more freely after the economy added an average of 245,000 jobs a month from December through February. That’s lowered the unemployment rate to 8.3 percent, the lowest in three years. Most economists expect similar job growth in March.
Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.
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Personal Saving Rate Plunges As Americans Get Back To Spending More Than They Earn
Back in the good old days of the mid-2000s, before that whole unpleasantness with the global financial crisis and the near-depression and what have you, Americans lived like kings. Kings, I say, with big-foyered mansions and six-wheeled Humvees purchased entirely with borrowed money because being fiscally prudent is the sort of thing terrorists do.
Then when the whole near-depression thing hit and the banks repossessed our mansions and Humvees, we were forced to live like cave-dwelling Taliban, “saving” our money instead of spending it. When we had money, that is.
Well, those days seem to be over. We’re back to spending more money than we earn. Yay?
The Commerce Department reported this morning that Americans jacked up their spending in February by 0.8 percent from the month before, even while their incomes only increased 0.2 percent. Take inflation into account, and we actually lost money in February, the third decline in the past four months, while still managing to raise inflation-adjusted spending at the fastest rate since September. Boom. Take that, Osama’s ghost.
As a result of this kick-ass mismatch between spending and income, the personal saving rate, which is the government’s measure of how much Americans save — the percentage of disposable income we don’t blow on lottery tickets and smokes — tumbled to 3.7 percent, the lowest rate since a similar 3.7 percent back in August 2009.
To find a lower saving rate, you have to go all the way back to December 2007, when the rate was just 2.6 percent. Hmm, what’s special about December 2007? Well, that’s when the recession officially began, according to the National Bureau of Economic Research.
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The Fed Obliterates the Savings Ethic
Depression babies learned early that “saving for a rainy day” was not something one hopes to do but a requirement. The saying originated when most people worked on the farm. And when it rained, the fields were too wet to plow, and the farmer — not to mention the hired hands — made no money.
Of course, my grandfather was the diligent sort who would use rainy days to do required maintenance on his implements, noting with derision other farmers who spent rainy days at the bar in town. He believed they would surely end up with broken equipment when the sun would reappear, keeping them from making hay.
So the idea of savings is not necessarily the return one receives on the money that’s socked away, but the piece of mind that, when the weather doesn’t cooperate, the saver has a little stash to tide him over. Of course, the vast majority of us don’t have to worry about the weather.
But an economic storm hit a couple years ago and plenty of people have not had work, rain or shine. Those who took heed of that old saw have no doubt weathered the storm better than those who didn’t. Most financial advisors recommend that a person have three month’s worth of living expenses saved — and some say six months worth, just in case. But how many people heed that advice?
There is no caveat to the counsel that says, “Keep six months of savings around if the money is earning at least six percent.” Even if the money sits there all shiny, not earning a thing, it’s the liquidity and insurance against the unknown that’s the issue.
Unfortunately, a central bank’s debauchery of the currency serves to raise people’s time preferences and impair their judgment. In a blog post recently, I highlighted the advice of life coach and author John P. Strelecky, who advises people to spend their tax refunds on an experience they will remember forever, rather than saving the few hundred or thousand dollars that the IRS may be giving back.
