Steve Bull's Blog, page 1284
October 17, 2017
Fed Confused About What Drives Inflation
On October 4 2017, the former governor of the Federal Reserve Daniel Tarullo in a speech at the Brookings think-tank in Washington said Fed policy makers do not have a reliable theory of what drives inflation. According to Tarullo, central bankers should pay less attention to theoretical models and more to actual data. However, how is it possible to make any sense of the data without having a reliable theory?
The importance of theory
The purpose of a theory is to enable to ascertain the definition of a phenomenon that is subject to investigation.
The correct definition attempts to identify the essence of the phenomenon i.e. the key parts that drives the phenomenon.
For instance, the definition of human action is not that people are engaged in all sorts of activities, but that they are engaged in purposeful activities – it is purpose that gives rise to an action.
So when Tarullo states that Fed policy makers do not know the causes that drive inflation he basically says that Fed policy makers have not as yet established the correct definition of inflation.
Is it then valid to be practical, as suggested by Tarullo, to focus only on the data to understand what inflation is all about? If Fed policy makers respond to changes in price indices without establishing what drives these changes this runs the risk of making things much worse.
Attempting to define what inflation is all about
The subject matter of inflation is embezzlement by means of diluting the purchasing power of individuals. The source for this act of embezzlement is increases in money supply out of “thin air”. The increase in money out of “thin air” sets in motion an exchange of nothing for something or the diversion of real wealth from wealth generators to the holders of the newly created money.
…click on the above link to read the rest of the article…
Europe’s Economic Death Spiral
QUESTION: Mr. Armstrong, you said when you were here in Berlin that the EU Commission is about as incompetent as the US Congress. You also said Macron is trying to federalize Europe as the solution Could you elaborate on that comment?
ANSWER: The EU Commission at present is composed of 28 Commissioners, who must always ensure that they are dependent on the nomination from the home country mush as American congressmen who are supposed to represent their state. Every member of the Commission, therefore, has a personal self-interest in staying in office. The complexity of regulations and initiatives often have hidden agendas that are often far too difficult to identify. One of the proposals of Macron is to reduce the Commission to just 15 eliminating state representation and the priority would then, in theory, be given to the professional competence of the candidates rather than representing member states. This would be the FEDERALIZATION of Europe and totally eliminate and democratic process. The people would have no say in changing the direction of Europe.
Macron is proposing to create European politicians. To deal with the end of a democratic process, he has suggested that these 15 commissioners be elected by all EU citizens in the longer term. He has said that with BREXIT, the British vacancies should be the first to be open to elections of all remaining Europeans in the EU. When commissioners are elected by their own politicians, then Macron argues they are not being elected by a European choice of citizens.
In fact, a smaller Commission and a Parliament he hopes would portray Europe as a whole that would forge the EU as a single government at last. This is argued would end the current paralysis that the EU is unable to get out of the economic hole it finds itself in and the ECB has failed with its stimulation to end deflation for nearly 10 years of quantitative easing
…click on the above link to read the rest of the article…
WORLD’S LARGEST OIL COMPANIES: Deep Trouble As Profits Vaporize While Debts Skyrocket
The world’s largest oil companies are in serious trouble as their balance sheets deteriorate from higher costs, falling profits and skyrocketing debt. The glory days of the highly profitable global oil companies have come to an end. All that remains now is a mere shadow of the once mighty oil industry that will be forced to continue cannibalizing itself to produce the last bit of valuable oil.
I realize my extremely unfavorable opinion of the world’s oil industry runs counter to many mainstream energy analysts, however, their belief that business, as usual, will continue for decades, is entirely unfounded. Why? Because, they do not understand the ramifications of the Falling EROI – Energy Returned On Invested, and its impact on the global economy.
For example, Chevron was able to make considerable profits in 1997 when the oil price was $19 a barrel. However, the company suffered a loss in 2016 when the price was more than double at $44 last year. And, it’s even worse than that if we compare the company’s profit to total revenues. Chevron enjoyed a $3.2 billion net income profit on revenues of $42 billion in 1997 versus a $497 million loss on total sales of $114 billion in 2016. Even though Chevron’s revenues nearly tripled in twenty years, its profit was decimated by the falling EROI.
Unfortunately, energy analysts, who are clueless to the amount of destruction taking place in the U.S. and global oil industry by the falling EROI, continue to mislead a public that is totally unprepared for what is coming. To provide a more realistic view of the disintegrating energy industry, I will provide data from seven of the largest oil companies in the world.
The World’s Major Oil Companies Debt Explode Since The 2008 Financial Crisis
…click on the above link to read the rest of the article…
October 16, 2017
North Korea Warns “Nuclear War Could Break Out At Any Moment”
Less than a day after South Korean and US naval forces kicked off their latest round of joint military drills, which are slated to run until the end of the week, North Korea’s deputy UN ambassador claimed during a fiery speech at the UN General Assembly that the Korean peninsula “has reached the touch-and-go point and a nuclear war may break out any moment,” the Associated Press reported.
Complaining to the UN General Assembly’s disarmament committee, Kim In Ryong argued that North Korea is the only country in the world that has been subjected to “such an extreme and direct nuclear threat” from the United States since the 1970s, adding that the isolated North has the right to posses nuclear weapons in self-defense.
This latest warning arrives as the US and South Korea are bracing for another North Korean missile test. For weeks now, South Korean intelligence has suspected that its isolated neighbor could use the beginning of China’s National Party Congress, which begins on Thursday, as an opportunity for what would be a bold act of defiance, angering both the US and the North’s primary benefactor and only major ally, China. The North has also been threatening to unveil a new ICBM that intelligence services believe might be capable of striking the west coast.
During his speech, Kim accused the US and South Korea of conducting military exercises involving “nuclear assets” and also mentioned a top-secret plan to stage a “secret operation aimed at the removal of our supreme leadership” developed by US and South Korean intelligence. The plan was exposed after North Korean hackers stole a large cache of military documents from the South.
…click on the above link to read the rest of the article…
The UK’s Clean Energy Strategy – and the greens are back
The UK government’s just-published Clean Energy Strategysupposedly leads the way to the low-carbon future that the 2008 Climate Change Act calls for. But all it actually does is dust off all the old, shop-worn green remedies (smart meters, smart grids, EVs, hydrogen, bioenergy, carbon capture and storage etc.) and present them as new solutions. The plan is to bring these solutions to reality by throwing money at them – by my reckoning at least £20 billion over the next few years – in the expectation that “investment” and “innovation” will deliver the desired outcomes, although the odds are strongly against it. In short, the greens are back in the saddle, and as a result the UK still lacks a workable energy plan.
The Clean Energy Strategy document (hereafter the CES) runs to 163 pages and often goes into considerable detail, which makes it difficult to synthesize in a single post. A simple way of gauging where the emphasis is placed, however, is to do word counts using key words and phrases. The results of my word/phrase counts are shown in the Table below:
Efficiency gets the most mentions, and improved energy efficiency is indeed worth pursuing, particularly when at least some of the recent reductions in UK emissions have come from more fuel-efficient vehicles, better-insulated buildings and the replacement of incandescent lights with LEDs (and also from people turning their thermostats down to lower their skyrocketing energy bills – an outcome of the same energy policies that the government now advocates more of. But I don’t propose to get into that here).
…click on the above link to read the rest of the article…
How The Elite Dominate The World – Part 1: Debt As A Tool Of Enslavement
Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit. But in our day and age, we are willingly enslaving ourselves. The borrower is the servant of the lender, and there has never been more debt in our world than there is right now. According to the Institute of International Finance, global debt has hit the 217 trillion dollar mark, although other estimates would put this number far higher. Of course everyone knows that our planet is drowning in debt, but most people never stop to consider who owns all of this debt. This unprecedented debt bubble represents that greatest transfer of wealth in human history, and those that are being enriched are the extremely wealthy elitists at the very, very top of the food chain.
Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?
Every year, the gap between the planet’s ultra-wealthy and the poor just becomes greater and greater. This is something that I have written about frequently, and the “financialization” of the global economy is playing a major role in this trend.
The entire global financial system is based on debt, and this debt-based system endlessly funnels the wealth of the world to the very, very top of the pyramid.
It has been said that Albert Einstein once made the following statement…
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
…click on the above link to read the rest of the article…
China’s mortgage debt bubble raises spectre of 2007 US crisis
Many young homeowners in booming cities owe more than they earn, and some even falsify salary details to get bigger mortgages
Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s.
As mortgages grow scarce in China, homebuyers turn to car and college loans, firm says
Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years.
City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.
“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.”
The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.
The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy.
…click on the above link to read the rest of the article…
Trump is Moving Toward War With Iran
With his Iran speech U.S. President Trump has taken a huge step into uncharted territories.
One that implies a 60-75% risk of leading to a US attack on Iran.
Behind him stands the hardline militarists whom he has himself appointed.
Secondly, neo-conservative individuals and think tanks who have brought the world only a series of failed wars and unspeakable human misery since the invasion of Afghanistan.
Third, the Military-Industrial-Media-Academic Complex, MIMAC, that is outside real democratic control and pushes relentlessly for ever-increasing armament and wars and serves the public all kinds of weird, fake images of what threatens the US.
Further, pro-Israeli and pro-Saudi lobby organizations and extremely wealthy individuals who buy political influence and thereby destroy the very foundations of democracy and free opinion formation.
Against these numerically tiny elites stand virtually the rest of the world, including NATO allies and the EU.
They’ve all communicated very clearly to the President how important it is for all involved that he re-certifies the immensely important and historically unique Iran nuclear deal of 2015, or the JCPOA.
As is usual for failed US foreign policy there is no comprehensive strategy and no exit strategy. Having no diplomatic relations with Iran for decades, Trump lacks appropriate channels of communication.
He also lacks basic knowledge of the country. (Whereas the Iranians know the West). His bizarre image of the country as presented in this speech bodes ill in every respect.
Seldom has a Presidential speech been so filled with psycho-political projections of one’s own dark sides on the adversary as this.
It will be extremely difficult, if not impossible, to de-escalate what he has pressed the escalation buttons for today.
The announced policy has nothing to do with an intellectually decent and comprehensive policy.
…click on the above link to read the rest of the article…
The Upcoming Increase in Interest Rates
Last week, both Janet Yellen of the Fed and Mark Carney of the Bank of England prepared financial markets for interest rate increases. The working assumption should be that this was coordinated, and that both the ECB and the Bank of Japan must be considering similar moves.
Central banks coordinate their monetary policies as much as possible, which is why we can take the view we are about to embark on a new policy phase of higher interest rates. The intention of this new phase must be to normalise rates in the belief they are too stimulative for current economic conditions. Doubtless, investors will be reassessing their portfolio allocations in this light.
It should become clear to them that bond yields will rise from the short end of the yield curve, producing headwinds for equities. The effects will vary between jurisdictions, depending on multiple factors, not least of which is the extent to which interest rates and bond yields will have to rise to reflect developing economic conditions. The two markets where the change in interest rate policy are likely to have the greatest effect are in the Eurozone countries and Japan, where financial stimulus and negative rates have yet to be reversed.
Investors who do not understand these changing dynamics could lose a lot of money. Based on price theory and historical experience, this article concludes that bond yields are likely to rise more than currently expected, and equities will have to weather credit outflows from financial assets. Therefore, equities are likely to enter a bear market soon. Commercial and industrial property should benefit from capital flows redirected from financial assets, giving them one last spurt before the inevitable financial crisis. Sound money, physical gold, should become the safest asset of all, and should see increasing investment demand.
…click on the above link to read the rest of the article…
The Coming One-World Currency
QUESTION:
Bitcoin + Cryptocurrencies
Firstly, thank you – I’ve learned more from your blog and models that high-school would ever have hoped to teach me. And even after a year I am a still at the start-line of knowledge.
I am also been a follower and investor/gambler on crypto for over a year.
I concur with your findings that Govt’ will ultimately try to ban or regulate to tax crypto currencies. It really is all about tax. nothing else. I really don’t see how it can have anything to do with terrorist funding and the need to track all transactions, considering that as far back as 1996 the Federal Reserve that “ about $200 billion to $250 billion of U.S. currency was abroad at the end of 1995, or more than half the roughly $375 billion then in circulation outside of banks.” So how do the track this cash? or do they really care?
But what happens if the people just ignore the gov’t(s) attempt to ban crypto? What then?
Is it likely, or even remotely possible that most gov’ts would work jointly and simultaneously to ban crypto currencies?
Will there always be several countries that will ignore / not join this movement to benefit from the flow of currency – even if this inflow is crypto currency or not hard currency?
What will happy if the people just revolt and ignore the gov’’s efforts to tax crypto or ban it?
Some insight on how and what happened with previous alternative currencies who help shed some light on this. Could you also recommend some reading in this area.
Thanks again for your patience and skill in translating your work into digestible English so people like myself can benefit from your knowledge
D
…click on the above link to read the rest of the article…
