Blog Archives

Why Is the Cost of Living so Unaffordable?

The mainstream narrative is “the problem is low wages.” Actually, the problem is the soaring cost of living. If essentials such as healthcare, housing, higher education and government services were as cheap as they once were, a wage of $10 or $12 an hour would be more than enough to maintain a decent everyday life.

Here are some examples from the real world. In 1952, it cost $30 to have a baby in an excellent hospital. If we adjust that by official inflation as measured by the Bureau of Labor Statistic’s inflation calculator to 2017, the cost would be $275. ($1 in 1952 = $9.16 in 2017).

What does it cost to have a baby delivered in a hospital today? $5,000? $10,000? Who even knows, given the convoluted billing process in today’s sickcare system?

The pharmaceutical cartel jacks up medication costs per dose from $3 to $600, even when the medication has been around for decades: the Pinworm prescription jumps from $3 to up to $600 a pill Parents, doctors angry over drug price gouging (via John F.)

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We Can Only Afford One, So Choose Wisely: Social Security/Medicare, Cartel Cronyism or Inflation (Central Banking)

It’s easy to quantify the annual cost of Social Security/Medicare, and not so easy to calculate the cost of Cartel Cronyism and Central Bank-created inflation.Cartel cronyism is a hidden tax on the entire economy, as is Central Bank-created inflation.

That makes it easy for the financial-political Oligarchy to continue their skimming operations, because nobody says Cartel Cronyism cost us $1 trillion last year, and central bank skimming (inflation) cost us another $1 trillion.

The stark reality is there are limits on what we as a nation can afford in the long term. Borrowing trillions of dollars annually at low rates of interest creates a magical-thinking illusion that we can just tack on another $10 trillion, or what the hay, make it $100 trillion, and get away with it, because we’ve gotten away with it so far.

This leaves us an equally stark choice: we can only afford one of these three crushing costs:

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A Tale of Two Housing Markets: Hot and Not So Hot

Though housing statistics such as average sales price are typically lumped into one national number, this is extremely misleading: there are two completely different housing markets in the U.S. One is hot, one is not so hot.

Just as importantly, one may stay relatively hot while the other may stagnate or decline.

All real estate is local, of course; there are thousands of housing markets if we consider neighborhoods, hundreds if we look at counties, cities and towns and dozens if we look at multi-city metro regions.

But consider what happens to average sales prices when million-dollar home sales are lumped in with $100,000 home sales. The average price comes in around $500,000– a gross distortion of both markets.

Here’s a real-world example of what has happened in hot markets over the past 20 years. The house in question is located in a bedroom community suburb in the San Francisco Bay Area metro area. The home was built in 1916 and has 914 square feet, no garage and a small lot.

It sold in 1996 for $135,000. This was a bit under neighborhood prices due to the lack of garage and small size, but nearby larger homes sold in the $145,000 to $160,000 range.

The house was sold in 2004 for $542,000, and again in 2008 for $575,000. It is currently valued at $720,000. The neighborhood average is $900,000.

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Forget Trump – Is Deutsche Bank The First Domino of the Next Economic Collapse?

The FIRST DOMINO of Contagion: 
Will Deutsche bank be the catalyst for the collapse of the European banking system?

Click Here For Full Coverage On Deutsche Bank: The First Domino Of the Next Collapse?

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The COLLAPSE Of The Western Banking System | Jim Willie

In this Exclusive Interview, Jim Willie warns that with US T Bonds already selling off, the banking system will be caught on the wrong side of the trade when it comes to derivatives on interest rate swaps.
As the U.S. banks collapse, Here’s What Happens Next:

Click Here For Parts 1 and 2 Of Full Exclusive Inteview With Jim Willie: 

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London Analyst Warns It’s Only A Matter of Time: THIS Is What Will Cause Gold Prices to Move in 2017

Will STAGFLATION Arrive in 2017, Sending Gold & Silver Prices SOARING?

“If The Fed Has to Hike Interest Rates to Control Price Inflation, It’s GAME OVER!”
Gold Money’s Expert Analyst Alasdair MacLeod Joins Us From London to Warn
Its Only A Matter of Time – THIS Is What Will Cause Gold Prices to Move in 2017:

Click Here For Full Coverage and Gold & Silver Market Recap:

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The Disaster of Inflation–For the Bottom 95%

Central banks are obsessed with boosting inflation, but the “why inflation is good” arguments make no sense for households being ravaged by inflation. The basic argument is that inflation makes it easier for debtors to service their debts.

But this is only true if income rises along with costs. If income stays flat while costs rise, households lose ground–debt remains a burden as the purchasing power of income plummets.

Central banks and the mainstream media make two fatal errors when discussing inflation.

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Are The ‘Invisible Americans’ the Key Players in This Election?

For the bottom 90% of American households, the “prosperity” of the “recovery” since 2009 is a bright shining lie. The phrase is from a history of the Vietnam War, A Bright Shining Lie: John Paul Vann and America in Vietnam.

Just as the Vietnam War was built on lies, propaganda, PR and rigged statistics(the infamous body counts–civilians killed as “collateral damage” counted as “enemy combatants”), so too is the “recovery” nothing but a pathetic tissue of PR, propaganda and lies. I have demolished the bogus 5.3% “increase” in median household income, the equally bogus “official inflation” body counts, oops I mean statistics, and the bogus unemployment rate:

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Could Inflation Break the Back of the Status Quo?

That inflation and interest rates will remain near-zero for a generation is accepted as “obvious” by virtually the entire mainstream media. The reasons for this are equally “obvious”: central banks have the power to suppress interest rates indefinitely by creating money out of thin air and using this new cash to buy bonds in unlimited quantities; and the commoditization/ globalization of labor, capital and production has generated a global backdrop of over-capacity and near-zero pricing power.

But suppose for a moment that this confidence in near-zero interest rates and inflation as far as the eye can see is wrong. As I have demonstrated this week,rising interest rates and inflation would break the back of the status quo.

What makes inflation difficult to grasp is its multi-faceted character. Inflation is a monetary dynamic, to be sure, as creating new fiat currency in excess of increasing production / productivity reduces the purchasing power of the currency.

But as I have shown this week, inflation is also one result of cartel capitalism, in which politically powerful cartels can raise prices and reduce quantity and quality without fear of consumers going elsewhere because the cartels have effectively eliminated competition via regulatory capture, lobbying and the immense advantages of unlimited credit from central banks.

Inflation is also tied to the incentives for fraud in our system: lowering quality as a means of Inflation Hidden in Plain Sight increases profits at the expense of consumers who have few means to detect and measure the reduction in the value of what their money buys.

No Wrongdoing Here, Just 6,300 Corporate Fines and Settlements (May 2015)

Inflation is also the result of revenue-hungry governments which jack up junk fees, stealth taxes and outright taxes while delivering lower quality services.

As I have noted many times, inflationary forces are built into urbanization and modern systems of production. Socio-historian Immanuel Wallerstein listed three dynamics that raise costs while delivering little additional direct value to consumers:

1. Urbanization increases the cost of labor (a reality since the 1400s).

2. Externalized costs (dumping private waste into the Commons, environmental damage and depletion, etc.) eventually must be paid one way or another.

3. Rising taxes as governments responds to unlimited demands by citizens for more services (education, healthcare, etc.) and economic security (pensions, welfare).

Financialization also feeds inflation in a variety of subtle ways. The wealthy can keep abreast of real inflation via Asset Inflation while the bottom 95% struggle to pay higher prices for everything from burritos to healthcare.

Financiers and corporations with unlimited credit lines at near-zero rates can buy up rental housing and jack up rents, for example, while asset inflation has pushed housing out of reach of moderate-income households living in job-rich desirable areas.

Meanwhile, small businesses without access to unlimited credit at near-zero interest rates struggle to stay afloat as prices and overhead costs weigh ever more heavily:

So how could inflation rise despite near-universal faith that central banks can inflate credit and assets forever without triggering inflation? History suggests that rampant creation of fiat currency far in excess of increases in GDP eventually catches up with central planners. Consider this chart of inflation in Venezuela:

Another widely held truism holds that inflation cannot rise until wage inflation takes hold. Given the pressure of automation on human labor (and the rising costs of laboir-related overhead such as healthcare), the belief that labor costs will remain subdued makes sense.

But it isn’t quite that simple. Ironically, as automation replaces lower-value labor, the work that cannot be automated becomes more valuable. Difficult-to-automate labor generally requires a high level of education and experience, and often requires working knowledge of multiple fields.

The number of workers with these skills is limited by these high hurdles. There might be 1,000 unemployed people seeking a job but only 200 possess the skillsets that are in demand. (THe Pareto Distribution–the 80/20 rule–suggests 20% of the workforce generates 80% of the productivity gains and profits.)

This is as true of skilled tradespeople as it is of high-level managers.

The net result of these trends is eventual wage inflation as employers who need these high-level skills will have to bid for the relatively few workers with the requisite skills.

Though it may appear counter-intuitive, these dynamics inevitably generate an economy in which low-skill labor is in over-supply and millions are unemployed because low-skill work is scarce and those able to perform the work are abundant, while those able to perform high-skill labor are scarce.

In this scenario, wages for the top 20% of the workforce rise due to supply-demand imbalances while wages for the lower-skill 80% rise due to political pressures such as we’re seeing now with demands for higher minimum wages.

The imminent retirement of millions of experienced Baby Boomer workers will only exacerbate these wage inflation pressures.

Tens of millions of workers have removed themselves from the workforce or have been removed by restrictive disabled-benefits statutes. Millions more get by on welfare or welfare benefits supplemented with cash income earned in the burgeoning black market economy.

Last but certainly not least, political resistance to the oligarchy’s financialization skimming operations will eventually cripple central bank giveaways to the financial sector and corporate oligarchs. There is no other honest word to describe central bank policies other than giveaway, as free money for financiers has greatly expanded wealth and income inequality and handed financiers and corporations essentially unlimited funds to expand cartels and buy political power.

The mainstream financial media is blind to the reality that finance is always political. The privileged few with access to unlimited central bank giveaways can profit in ways that are not available to the bottom 99.9%. Once the political winds of resistance to the oligarchy rise, central banks and the state agencies that enable the dominance of the financial oligarchy will face limits that did not exist in the years of bogus “recovery” (2009-2016).

Unprecedented expansion of credit, wage inflation and much-needed limits on the power of central banks to give away billions to oligarchs will generate inflation. The central planners have successfully masked real inflation behind a smokescreen of official statistics, but eventually a wind will rise that blows the smokescreen away, and the reality of rising inflation will break the back of the financial-political status quo.

Of related interest:

Is This the Terminal Phase of Global Capitalism 1.0? (February 8, 2013)

How the Middle Class Lifestyle Became Unaffordable (May 7, 2014)

Recommended books on these topics:

Civilization & Capitalism, 15th to 18th Centuries (3 volumes):
The Structures of Everyday Life (Volume 1)
The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)

The Long Twentieth Century: Money, Power and the Origins of Our Times

World-Systems Analysis: An Introduction

My new book is #7 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book’s website.

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What Happens When Rampant Asset Inflation Ends?

Yesterday I explained why Revealing the Real Rate of Inflation Would Crash the System. If asset inflation ceases, the net result would be the same: systemic collapse. Why is this so?

In effect, central banks and states have masked the devastating stagnation of real income by encouraging households to take on debt to augment declining income and by inflating assets via quantitative easing and lowering interest rates and bond yields to near-zero (or more recently, less than zero).

The “wealth” created by asset inflation generates a “wealth effect” in which credulous investors, pension fund managers, the financial media, etc. start believing the flood of new “wealth” is permanent and can be counted on to pay future incomes and claims.

Asset inflation is visible in stocks, bonds and real estate:

The sources of asset inflation are highly visible: soaring central bank balance sheets, credit expansion that far outpaces GDP growth and ZIRP (zero interest rate policy):

Destroying the return on cash with ZIRP and NIRP (negative interest rate policy) has forced capital to chase any asset that offers any hope of a positive yield. As asset inflation takes off, the capital gains attract more capital (never mind if yields are low–we’ll make a killing from capital gains as the asset inflates further) which creates a self-reinforcing feedback: the more assets inflate, the more attractive they become to capital seeking any kind of return.

In effect, gambling on additional future asset inflation is the only game in town.Institutional money managers are buying bonds that yield less than zero not because they’re pleased to lose money, but because they anticipate rates dropping further.

As bond yields decline, the value of existing bonds paying higher interest rises. As crazy as it sounds, buying a bond paying -0.01% will be a highly profitable trade if the yield on future bonds drops to -0.1%.

With the cost of borrowing less than zero once the loss of purchasing power (i.e. consumer price inflation) is factored in, it makes sense to borrow money to increase speculative asset purchases to leverage up any gains from future asset inflation.

Look at how margin borrowing and stock prices move in lockstep:

The question that few ask is: what happens to pension funds that need 7.5% annual returns to remain quasi-solvent when asset inflation turns into asset deflation, i.e. assets decline in value? Take a look at the S&P 500’s rise to the stratosphere and ponder the monumental losses that would accrue to any institution that thought asset inflation was a permanent feature of modern life:

There are only two ways to keep asset inflation alive: one is for central banks and states to buy up major chunks of all asset classes, i.e. hitting every higher bid regardless of the risks of such a strategy, and the second is to pay households to borrow money to chase future asset inflation, for example, paying households to buy a house with a mortgage:

The insanity of these two strategies is no hindrance to their implementation.The collapse of asset inflation will implode all the fiscal and financial promises based on ever-inflating assets and reveal the unsustainability of the status quo’s strategy of substituting debt and asset bubbles for stagnating real income.

My new book is #7 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book’s website.

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Inflation Hidden in Plain Sight

Yesterday, I showed how Consumer Prices Have Soared 160% Since 2001 for everything from burritos to healthcare. This enormous loss of purchasing power is not reflected in the official measure of inflation, which claims inflation is subdued (1% or so annually).

But price inflation doesn’t necessarily reflect all the inflation that’s hidden in plain sight in smaller quantities and declining quality. We’ve all observed prices of consumer items remaining the same while the amount of the product we receive for our money is less than it was a few years ago.

While a reduction in product quantities can be easily calculated, reductions in quality are harder to discern and calculate.

Consider the quantity and quality of the paint being applied to kitchen appliances. Although I can’t quantify this, I’ve noticed appliances such as ranges and refrigerators are now prone to rust along the bottom edges in a few years because the manufacturers no longer apply much paint to surfaces and edges that are not visible, for example the underside of the steel exteriors.

This sort of rust was unknown in older appliances, or would only be visible after decades of service, not a few years.

I also notice that the paint is now so thin that scrubbing will in some cases remove the top layer of paint.

These reductions in quality may be the result of corporate cost-cutting or planned obsolescence or both. The net result is a form of inflation/loss of purchasing power as the price does not reflect smaller quantities and reduced quality/ service life.

As a result, many hedonic adjustments to inflation that are supposed to reflect better quality or productivity characteristics are bogus. A laptop computer may have more memory and processing power for the same price as previous models, but who measures the reduction in service life or the stagnation of productivity?

The reality is that most of us don’t even use the full capacity of the processors or memory, and the industry’s planned obsolescence has reduced the service life of new PCs. My 31-Year Old Apple Mac Started Up Fine After 15 Years in a Box (February 28, 2015)

Big Pharma has been busy jacking up the cost of medications that are off-patent by 500% or more. Meds that were a few dollars are being increased by 1,000% because, well, Big Pharma can raise prices without delivering any additional value.

Can we be honest and say that many of the reductions in value, quantity and quality are actually instances of fraud?

Whether we attribute inflation in plain sight from reductions in value, quantity and quality to cost-cutting, planned obsolescence or fraud, the reality is that these declines in purchasing power and value (i.e. inflation) are real but difficult to calculate and track.

That is why inflation in plain sight is so attractive to corporations and institutions.

My new book is #7 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book’s website.

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One Chart Says It All

Sometimes one chart captures the fundamental reality of the economy: for example, this chart of money velocity and the civilian-population ratio. (thank you, Joseph Y. for posting it on my Facebook feed.)

When the blue line is up, more of the population has a job. (the blue line is the Employment-Population ratio.)

The red line is money velocity, the rate at which money changes hands. (Money buried in the coffee can in the back yard has a money velocity of zero.)

As Joseph noted, the correlation between the percentage of people working and money velocity was strong until 2010. In the post-2009 recession “recovery,” the percentage of the populace with jobs rose modestly, but money velocity absolutely cratered to unprecedented lows.

(The one other disconnect was triggered by the 1987 stock market crash, which caused money velocity to dip even as more people entered the workforce. This absence of correlation was relatively brief.)

The correlation between more people working and money velocity is commonsensical. More people working = more household income = more spending = higher money velocity.

But something changed in 2010. Did the quality and compensation of work change? Joseph observed: People started going back to work after the official recession ended in Q4 2009 but they were working for lower pay. With lower pay comes less disposable income, hence the cliff-like drop off in velocity.

Another potential factor is higher inflation. Some recent estimates (Where’s The Beef? ‘Lies, Damned Lies, And Statistics’) suggest the gap between official inflation and actual inflation in rent, food, energy and medical care in the past 20 years has subtracted 20% from paychecks.

The four “biggies” for the average American are rent, food, energy, and medical care, in approximately that order. These “four horsemen” have been galloping along at a faster rate than headline CPI. According to the BLS definition, they compose about 60% of the aggregate population’s consumption basket, but for struggling middle-class Americans, it’s closer to 80%. For the working poor, spending on these four categories can stretch to as much as 90% of total spending.

(If we add exposure to higher education’s soaring costs, the rate goes even higher.)

So even if wages held steady, once we factor in “real” inflation, real take-home pay has declined by 5% to 20%, depending on the household’s exposure to rent, food, energy, medical care (love those co-pays and out-of-pocket expenses) and higher education.

Another potential factor is the figurative coffee can in the back yard: people sense the ‘recovery” is bogus, and their rational response is to save more money rather than squander it. Even though central banks have reduced the yield on savings to less than zero, people are still saving whatever they can.

Data suggests it’s all three: lower incomes, higher inflation and a recognition that savings are more important in a ‘Lies, Damned Lies, And Statistics’ economy than more spending.

This chart says it all: real income is declining and the bottom 95% are poorer.No wonder people are socking away what they can and tightening their spending: they have no other choice, even as the Federal Reserve strip-mines their savings.

My new book is #3 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book’s website.

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