Interesting quotes in the news this week.
Kyle Bass is a sophisticated financier who understands at least what is happening today, in the Night-Cycle. The Day-Cycle, the 18-years of Inflation, is the process of anti-entropy: higher and higher forms of energy organization, coherence -- the opposite of Chaos. The Night-Cycle is the opposite, entropy, higher and higher forms of disorganization of energy. Kyle Bass writes: "War is economic entropy played out to it's logical conclusion."
Day-Cycles (1911-1929; 1947-1965; 1983-2001...) are periods of economic anti-entropy, gain of heat, gain of energy, gain of a sense of direction into the future, higher and higher forms of organization.
Night-Cycles (1929-1947; 1965-1983; 2001-2019...) are periods of economic entropy, the loss of heat, the loss of energy, loss of a sense of direction in time, a sense of traveling into the past, higher and higher forms of disorganization. Bass is correct: "War is economic entropy played out to its logical conclusion.
Art Laffer, economic advisor to Ronald Reagan said in an interview today that "the whole American economy is shrinking." Studying the recent GDP report, which reported a surprise negative GDP, with much of the blame going for a decline in US military spending. Laffer called the situation 'catastrophic' -- Laffer called it the worse report since the economy began recovring in 2009. and said: "It's amazing, isn`t it? We spent $5.8 trillion in the last couple of years, and this is what we get for it. Have you ever heard of a poor man spending himself into prosperity? It`s just dumb on the outset. Government spending, as [economist] Milton Friedman always said, is taxation," he continued. "Government doesn`t create resources, it redistributes resources. And this government spending stuff is why we have the great recession."
He did not blame only Obama but said George W. Bush had been just as bad.
Laffer then said: "We know how to fix it, by the way, a low rate flat tax, spending restraint, sound money, free trade."
And I quote this to show the reader where Laffer is half-right, but only half-right: because he does not understand the place where America is in the cycle. We are at Dusk, not Midnight.
Laffer said Reagan cut the highest taxes, but made a mistake in only phasing in the cuts, which he said "caused the 1981-2 recession.'
This is ludicrous. If anything caused the 1981-2 recession(s) it would have been Paul Volcker's finally raising interest rates through the roof -- they should have been raised slowly and steadily since 1965. Laffer also conveniently ignores the fact that America had serial recessions from 1965-1983 because in was in the Night-Cycle. We see how important knowing cycles is: isolating events to figure our causality separates the phenomena from the pattern, which is lethal to true understanding.
Laffer goes on: the economy 'took off' in 1983, 'when the tax cuts went into full effect'. Of course the economy took off in 1983, but not because of tax cut. 1983 was the apex of the Night-Cycle; and the year of the Triple Effect (the Trinity experience), when the Black Hole turned inside out and upside down and became the White Hole.
Laffer said: "This place just went like a rocket ship," he said. "I think we had 7.5 percent growth in 1983 and 5.5 growth in 1984, just this boom that lasted for years and years."
Laffer is confusing where we are today with where we were in 1983. In 2019 we will be comparably where we were in 1983. Lower taxes on the rich will not do anything to help growth today. We are imploding through 2019. There is nothing we can do about it except face the sobering truth, cut debt, tax the rich even more rigorously until 2019, and cut government spending as well. Our only job until 2019 is the cut debt and to raise interest rates to do this (and to begin rewarding normal Americans with interest on savings and stop rewarding the speculators who ruined the American economy after 2001).
Timing is everything.
Former CIA analyst James Rickards has written a book, The Coming Currency War, a war he claimed was started by America and by Ben Bernanke's Quantative Easing and Zero Interest Rate Policy after 2008, which Rickards claims is destroying the US Dollar, a war which Rickards also claims America will lose. Rickards is a CIA analyst who has worked on all the major domestic crises in America since 1998, including the 9/11 Twin Towers attacks, studying through Wall Street transactions, suggesting a close study of Wall Street could have predicted the 9/11 attacks. Rickards has testified before Congress and before the Pentagon on the dangers of Bernanke's QE monetary manipulations and chis conclusion is that America is heading toward an 'economic Pearl Harbor' -- Rickards asserts that Ben Bernanke is more dangerous to America than Al Qaeda currently is or Osama Bin Laden was.
He was dismissed after Congressional hearings; although some congressmen now are speaking about "America's economic Pearl Harbor". There is reason to believe that Richards' testimony before the members of the American military at the Pentagon was not so quickly dismissed
Housing Bubble 2.0.
David Stockman talked with Yahoo's Daily Ticker about the Housing Recovery in America.
Some have called a U.S. housing recovery as a bright spot in a so-called broader domestic economic recovery. And data seems to support this analysis, despite a slowdown in sales momentum at the end of the year. Existing home sales in December were up 12.8% from the same time in 2011, with the total number of sales in 2012 rising to the highest level in five years, according to the National Association of Realtors. Meanwhile, the annual price for existing homes also jumped to the highest level since 2005, with the median price of a home up 11.5% in December from the same period in 2011.
But David Stockman, former director of the Office of Management and Budget in the Reagan Administration sees little to get excited about. "I would say we have a housing bubble...again Stockman's point is that artificially low interest rates and speculation are to blame, not unlike the last boom and bust cycle in real estate "We don't have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren't what they appear to be," Stockman says.
Stockman continues: "The so-called recovery is happening in the most speculative sub-prime markets, where massive amounts of 'fast money' is rolling in to buy, to rent, on a speculative basis for a quick trade," he contends. "And as soon as they conclude prices have moved enough, they'll be gone as fast as they came."
By 'fast money', Stockman means professional investors like hedge funds and private equity firms. To his point, global investment firm Blackstone (NYSE:BX) has spent more that $2.5 billion on 16,000 homes to manage as rentals, according to Bloomberg. It's now the country's largest investor in single-family homes to manage as rentals, with properties in nine markets. And Blackstone is joined by others like Colony Capital LLC and Two Harbors Investment Corp. (NYSE:SBY) in trying to turn this market into a new institutional asset class, Bloomberg reports. This smells like just another Wall Street scam, like the origin MBS scam that turned bundled high-quality and low-quality mortgages into high quality mortgage bonds, for which AAA rating the US government in now suing Standard and Poor.
As for the "American Dream" of home ownership, Stockman argues the past model where the government was trying to get to 69% home ownership was a huge policy mistake that led to no-downpayment loans, liars loans, and a degradation of lending standards. He says the government should have no dog in the hunt when it comes to ownership versus renting.
Stockman argues the problem in housing is the two forces needed for a recovery, first-time buyers and trade-up buyers, are missing. With the combination of 7.9% unemployment and staggering student loan debt, he doesn't see a young generation of new home buyers coming into the market. And with baby boomers heading for retirement with less than adequate savings, he thinks they'll be trading down with their homes, not up.
Stockman sees a rise in interest rates as the trigger for any kind of bust. He says you can't have zero rates forever, referring to the Fed's ZIRP and quantitative easing policies of the last several years. "As soon as the Fed has to normalize interest rates, housing prices will stop appreciating and they'll probably head down," he explains. "The fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it's appeared. I don't know how many times we're going to do this, and the only people who benefit are the top one percent - the hedge funds, the LBO funds, the fast money people who come in for a trade, make a quick buck, and move along to the next bubble."
Mortgage rates, for their part, rose from an average 3.42 percent to 3.53 percent on Thursday, the sharpest increase in 10 months, according to the weekly survey of 30-year mortgages by Freddie Mac, the government-backed mortgage company. Even still, mortgage rates are hovering around their lowest levels in more than 30 years.
PICTURES IN THE NEWS.
America is deleveraging? Think again. The first chart shows household debt. Household liabilities still at record levels and declining every so slowly. We don't need to pull back to moving averages; we need to get rid of the debt. Salaries are not increasing. Debt is like snow on your roof. Once it gets too heavy, the roof collapses.
The federal debt picture is the same story. Note how a top was set up for 2001, when we should have begun deleveraging. But Greenspan came to the rescue. And because of this, we are now in the worse debt picture possible.
This picture comes from Bill Gross. Japan and America are following the same academicians into the sunset. You may want to ask yourselves: Is this a good thing? This show investment as a % of GDP for both Japan and America.
You say the economy is recovering? Think again. Steel mills say it is not. The production of heavy duty trucks say it is not. New orders in manufacturing and year-over-year growth says it is not.
The GDP trouble in America this past quarter was not a cut in military spending alone -- as Art Laffer says (above), the whole economy is shrinking. The only thing not shrinking is Americans' and America's debt, the Fed balance sheet, and Housing Bubble 2.0 (not yet).
Time to wake up. The Debt needs to go. Raise interest rates. Let's get this recovery started. We need to stop lying to ourselves about growth.
SOME CONTINUING THOUGHTS
Is this Obama's fault? Some of it is. Not firing Bernanke is Obama's fault. Following Republican ideas in the Fed is Obama's fault. Socialism for the Rich is a Republican idea, not a Democratic idea.
Obama followed the George W. Bush policy of Bankers First, through Bernanke. This was/is a mistake. Obama would have been elected overwhelmingly if he would have started a war with Wall Street, blamed them for the global catastrophe, and unloaded Bernanke as soon as he could have. We would have had a class war. He would have been a populist leader, instead of what he is today: luke-warm pretender, barely better than the Republican alternatives. (If Mitt Romney would have told the electorate: "We have too much debt. We need to tax the rich AND cut government spending", he would be president today. But Mitt followed the ideology and lost.)
Obama didn't drive the train over the cliff. Clinton-Bush did that, Clinton by deregulating the banks; Bush by believing that businessmen were basically honest. So, we follow Japan instead. In 20 years our stock indexes may be down 80% from our Housing Bubble Top, like Japan's is. Can't preserve the status quo if the status quo is a CANCER.
Oh, one more thought. Obama isn't anti-growth. We already had our growth: 1983-2001. Now, no matter what, we get no growth from 2001-2019. Ever heard of entropy. Anti-entropy is about growth, growth of energy, growth of heat, growth of an economy product. Nothing grows for ever in nature. You get growth for 18 years, 1983-2001. Then you get a harvest, in this case the global economy is the harvest. But it does not just get better and bettter and keep growing for ever. Entropy sets in once the plant is ripe. Heat is lost. Energy is lost. The decline sets in. No matter what you do you get an increase in the disorganization of the energy of the system.
There is a magic process which occurs in the bottoming process: ...1911, 1947, 1983, 2019.... whereby entropy coverts to ant-entropy, cold energy (frozen energy) coverts to warm energy (fluid or molten energy)....and then growth begins again.
You can cheerlead for GROWTH! GROWTH! GROWTH! but there is more to growth than just cheaper and cheaper money -- as they say, timing is everything.
Michael J. Clark, Hanoi