Ruh-roh

Is GE the new Enron?

An accounting expert who raised red flags about Bernie Madoff ’s Ponzi scheme has a new target: General Electric Co.

In a research report posted online Thursday, Harry Markopolos alleges the struggling conglomerate has masked the depths of its problems, resulting in inaccurate and fraudulent financial filings with regulators. The report, which numbers more than 170 pages and was reviewed by The Wall Street Journal, is a mixture of detailed financial analysis and sweeping claims.

Mr. Markopolos said, in an interview ahead of the report’s release, his group found GE’s insurance unit will need to bolster its reserves by $18.5 billion in cash and faulted the way the company is accounting for its oil-and-gas business. All told, he said, the accounting problems amount to $38 billion, or 40{0b837c000488b51cdb5548ae5fd7a9dd09188a2c542ead0ccc6c9432c63dc0eb} of the conglomerate’s market value….

The report claims that policy premiums paid to GE are low compared with what rivals typically receive and that GE isn’t receiving any premiums at all on more than a quarter of policies, because those contracts are considered paid in full. The group says that, even after the $15 billion boost, GE’s reserves are well below what would be expected for such a troubled group of policies. GE in the early years front-loaded gains from the long-term-care business by collecting premiums when policyholders were young, the group claims, but failed to properly record reserves as the covered population aged and claims ran at higher levels than originally expected.

As we pass the recent stock market peak and enter a new correction or bear market, a lot of fraud is going to be uncovered. This is almost certainly just the start of an ongoing series of accounting revelations.


China fires its biggest gun

Economically speaking, you understand, by lowering the value of the Yuan against the USD:

“The wait is over for those wondering how Beijing would respond to Trump’s recent tariff announcement,” BMO said. “The result: the yuan was allowed to depreciate well beyond 7.0.”

Krueger called China’s retaliation “massive,” adding that “on a scale of 1-10, it’s an 11.” He cited the Chinese government calling on state buyers to halt U.S. agricultural purchases, while there’s “increased anecdotal evidence that the Chinese government is tightening its overview of foreign firms.”

“While there were measures that could have been chosen with larger direct effects on supply chains, the announcements from Beijing represent a direct shot at the White House and seem designed for maximum political impact,” Krueger said. “ We expect a quick (and possibly intemperate) response from the White House, and consequently expect a more rapid escalation of trade tensions.”

This doesn’t matter to the real economy. The US economy will only benefit from a reduction of trade with China. But it does matter quite a bit to the financial economy, hence all of the sturm und drang and falling stock markets.

It’s interesting that they resorted to this so quickly. It appears things are a little shakier over there than everyone except Nate suspected.


Pedo-economics

Readers here are well familiar with my rejection of Keynes and his General Theory, which unlike most economists, I have actually read. Twice. And the fact that it is a piece of Freudian lunacy applied to economics means that it is less than astonishing to be told that the lunatic economist was, as the English put it, a paedophile:

Students of economics know Keynes as arguably the most influential economist of the 20th century. His prescriptions for stimulus spending and active government intervention in economic affairs have become go-to-strategies for governments across the world.

However, one lesser known aspect about his life was his pedophiliac activity. Economist Saifedean Ammous’ book, The Bitcoin Standard, details some interesting factoids about Keynes’ life.

Ammous started off by detailing how the family unit is destroyed by government largesse:

Substituting the family with government largesse has arguably been a losing trade for individuals who have partaken in it. Several studies show that life satisfaction depends to a large degree on establishing intimate long-term familial bonds with a partner and children. Many studies also show that rates of depression and psychological diseases are rising over time as the family breaks down, particularly for women. Cases of depression and psychological disorders very frequently have family breakdown as a leading cause.

The economist then transitioned his analysis into Keynes’ life, which revealed his pedophiliac tendencies:

It is no coincidence that the breakdown of the family has come about through the implementation of the economic teachings of a man who never had any interest in the long term. A son of a rich family that had accumulated significant capital over generations, Keynes was a libertine hedonist who wasted most his adult life engaging in sexual relationships with children, including traveling around the Mediterranean to visit children’s brothels.

Keynes was one of the important architects in the construction of Satandom. His work was integral to the inversion required to create the modern financial system that is built on a foundation of usury.


Leashing the tech giants

I did a Darkstream just last night on France enacting a new tax on the big tech companies to prevent them from accounting their way out of taxes. Now the UK has followed suit:

Britain is on a collision course with Donald Trump today after unveiling a ‘digital services tax’ to grab £400million-a-year more from global tech firms such as Amazon, Google, Apple and Facebook. The UK is pushing ahead with plans for a proposed two per cent levy on sales starting next April targeting online giants with global sales of more than £500million and at least £25million in UK revenue.

Amazon, Google, Apple and Facebook would pay an extra £300million-a-year to the Treasury based on their current revenues, MailOnline has calculated, with up to 30 companies set to be hit.

Britain wants more cash from major search engines, social networks and online marketplaces who use legal loopholes to ensure their UK profits are taxed in countries such as Ireland, Luxembourg and the Netherlands at a lower rate than in London.

These revenue-based taxes are an absolutely necessity given the global nature of these businesses. There is no reason global corporations should be permitted to be active in a jurisdiction if they’re not going to pay any taxes there. And before you get all libertarian-indignant about this, remember, corporations are a) even less accountable to the nations in which they are not based than the national government and b) they are literally government agents themselves.


Ditching VISA and Mastercard

Whether Venezuela follows through on this or not, I would expect other countries to do so in the not-too-distant future. The US-based payment systems are no longer reliable.

The central bank of Venezuela will develop an independent national payment system to get rid of international giants Visa and Mastercard in response to US sanctions, according to local media citing the regulator.

The document, which also separately mentions multi-national debit card service Maestro owned by Mastercard, orders a suspension of debit card operations starting November 2019 and payments via credit cards from January 2020.

The joint order was reportedly issued on May 16 by the central bank and Superintendency of the Institutions of the Banking Sector of Venezuela (SUDEBAN), responsible for ensuring the country’s banks comply with local regulations. It instructs the banks to create a “sovereign” system to process financial operations that will use clients’ biometric data.

The attempts to exert control over who can, and who cannot, utilize the monetary system is transforming the Internet economy into something resembling a South American economy, with all the uncertainty and chaos that one would expect.

And the current system is falling apart anyhow. When Deutsche Bank is laying off 18,000 people around the world, that’s a pretty strong indication that change is coming.

When traditionally stable institutions like Deutsche Bank find themselves in trouble, it’s a signal that the world’s financial system will face big problems down the road, legendary investor Jim Rogers has told RT.

On Monday, the German multinational investment bank –and the world’s 15th largest bank by total assets– started cutting thousands of jobs as part of an $8.3 billion overhaul announced one day earlier. The bank’s workforce is set to be reduced by 18,000 to around 74,000 employees by 2022, as Deutsche Bank scraps its global equities and trading operations. The move has already impacted the bank’s shares, which started to fall after initial 4 percent gains on Monday.

“The financial system is in trouble and this is just one sign of what is going on. This has happened in previous financial problems in the 1930s or the 1960s or the 1990s,” Rogers said in a phone interview with RT. He explained that central banks around the globe drove interest rates “to crazy levels,” and now we have to pay the price for that.


No tax for young workers

Poland is getting serious about shutting down labor mobility:

Polish lawmakers have approved a measure that would exonerate most workers under the age of 26 from income taxes as the country seeks to stem the flow of its young people to other EU nations in search of better paying jobs.

The lower house of parliament approved the measure introduced by the ruling conservatives in a vote late Thursday by an overwhelming majority.

The bill would exonerate workers under the age of 26 from Poland’s 18 percent personal income tax for those whose gross earnings don’t surpass 85,500 zlotys (20,000 euros, $22,500) per year.

That level is higher than Poland’s average income, estimated to be around 60,000 zlotys per year before tax.

The approval of the measure by the upper house of parliament and its signature by the president is widely expected.

Some two million people could benefit from the measure, according to supporters of the legislation, which should enter into force from August 1.

Despite the inevitable whining from the Open Borders crowd, it’s a great idea. Now they should do something similar for married couples with children. Incentivize the behavior that benefits the nation. De-incentivize the behavior that harms the nation.

It’s not a difficult concept.


The old rules don’t apply

Yet another reason to ignore Boomer advice, particularly as it regards the housing market:

Recently, however, we’ve lost the plot on the classic life arc of yesteryear. Places where real estate is cheap don’t have many good jobs. Places with lots of jobs, primarily coastal cities, have seen their real-estate markets go absolutely haywire. The most recent evidence of this remarkable change comes in a new report by the real-estate firm Unison. The company, which provides financing to homebuyers by “co-investing” with them, calculated how long it would take to save up a 20 percent down payment on the median home in a given city by squirreling away 5 percent of the city’s gross median income per year.

Nationally, the gap between income and home value has been rising. Using Unison’s methodology, it took nine years to save up a down payment in 1975. Now it takes 14.

But the aggregate numbers make the decrease in access to the real-estate market seem gradual, albeit troubling, and underplay the spikiness of the country. In Los Angeles, it would take 43 years to save up for a down payment. In San Francisco, 40. In San Jose and San Diego, 31. In Seattle and Portland, 27 and 23, respectively. In the east, New York and Miami topped the list, requiring 36 years to save up that down payment. Only Detroit, at seven years, was under the national average from 1975.

For young people in high-opportunity metro areas, the route to home ownership is basically blocked without the help of a wealthy family member or some stock options. Meanwhile, older people who bought under much more favorable circumstances have seen their equity stakes grow and grow and grow.

It’s really astonishing to review how many markets are fundamentally broken. I finally understand why some consider my 2033 timeframe to be optimistic. From my Gen-X perspective, the housing market was fairly reasonable until about 1997. That’s when everything took off like a rocket and essentially locked first-time buyers out.


Immigration and demand

Some researchers have managed to provide supporting evidence for the basic economic principle that increasing demand in excess of supply increases price.

19.21: immigrants as a share of population
17.71: 10-year percentage increase in housing prices

Keep in mind that these numbers are lower than they should be due to being artificially suppressed by the statistical artifacts of two debt-based housing crashes, as the researchers show both US and Spain showing a reverse correlation thanks to the big real estate crashes in 2008 and whenever the Spanish one took place.

Anyhow, the point is that the reason there are housing crises everywhere from Australia to the United Kingdom is immigration. It’s just one more piece of evidence that mass migration is catastrophic for a national economy.


Forgive us our debts

Jesus wasn’t just talking about sin when he told us to pray for the forgiveness of our debts. That’s one of the reasons the Pharisees hated him so much. Michael Hudson is interviewed concerning a very important trilogy of economic history he is writing:

MH: The key public concern throughout history has been to prevent debt from crippling society. That aim is what Babylonian and other third-millennium and second-millennium Near Eastern rulers recognized clearly enough, with their mathematical models. To make an ideal society you need the government to control the basic utilities — land, finance, mineral wealth, natural resources and infrastructure monopolies (including the Internet today), pharmaceuticals and health care so their basic services can be supplied at the lowest price.

All this was spelled out in the 19th century by business school analysts in the United States. Simon Patten [1852-1922] who said that public investment is the “fourth factor of production.” But its aim isn’t to make a profit for itself. Rather, it’s to lower the cost of living and of doing business, by providing basic needs either on a subsidized basis or for free. The aim was to create a low-cost society without a rentier class siphoning off unearned income and making this economic rent a hereditary burden on the economy at large. You want to prevent unearned income.

To do that, you need a concept to define economic rent as unearned and hence unnecessary income. A well-managed economy would do what Adam Smith, David Ricardo, John Stuart Mill, Marx and Veblen recommended: It would prevent a hereditary rentier class living off unearned income and increasing society’s economic overhead. It’s okay to make a profit, but not to make extractive monopoly rent, land rent or financial usury rent.

JS: Will human beings ever create such a society?

MH: If they don’t, we’re going to have a new Dark Age.

JS: That’s one thing that especially surprises me about the United States. Is it not clear to educated people here that our ruling class is fundamentally extractive and exploitative?

MH: A lot of these educated people are part of the ruling class, and simply taking their money and running. They are disinvesting, not investing in industry. They’re saying, “The financial rentier game is ending, so let’s sell everything and maybe buy a farm in New Zealand to go to when there is a big war.” So the financial elite is quite aware that they are getting rich by running the economy into the ground, and that this must end at the point where they’ve taken everything and left a debt-ridden shell behind.

JS: I guess this gets back to what you were saying: The history of economics has been expurgated from the curriculum.

MH: Once you strip away economic history and the history of economic thought, you wipe out memory of the vocabulary that people have used to criticize rent seeking and other unproductive activity. You then are in a position to redefine words and ideals along the lines that euphemize predatory and parasitic activities as if they are productive and desirable, even natural. You can rewrite history to suppress the idea that all this is the opposite of what Adam Smith and the classicaleconomists down through Marx advocated.

Today’s neoliberal wasteland is basically a reaction against the 19thcentury reformers, against the logic of classical British political economy. The hatred of Marx is ultimately the hatred of Adam Smith and John Stuart Mill, because neoliberals realize that Smith and Mill and Ricardo were all leading to Marx. He was the culmination of their free market views — a market free from rentiers and monopolists.

That was the immediate aim of socialism in the late 19thcentury. The logic of classical political economy was leading to a socialist mixed economy. In order to fight Marxism, you have to fight classical economics and erase memory of how civilization has dealt with (or failed to deal with) the debt and rent-extracting problems through the ages. The history of economic thought and the original free-market economics has to be suppressed. Today’s choice is therefore between socialism or barbarism, as Rosa Luxemburg said.

JS: Let’s consider barbarism: When I observe the neoliberal ruling class — the people who control the finance sector and the managerial class on Wall Street — I often wonder if they’re historically exceptional because they’ve gone beyond simple greed and lust for wealth. They now seek above all some barbaric and sadistic pleasure in the financial destruction and humiliation of other people. Or is this historically normal?

MH: The financial class has always lived in the short run, and you can make short-term money much quicker by asset stripping and being predatory can by being productive. Moses Finley wrote that there was not a single productive loan in all of Antiquity. That was quite an overstatement, but he was making the point that there were no productive financial markets in Antiquity. Almost all manufacturing, industry, and agriculture was self-financed. So the reader of Finley likely infers that we modern people have progressed in a fundamental way beyond Antiquity. They were characterized by the homo politicus, greedy for status. We have evolved into homo œconomicus, savvy enough to live in stable safety and comfort.

We are supposedly the beneficiaries of the revolution of industrial capitalism, as if all the predatory, polarizing, usurious lending that you had from feudal times (and before that, from Antiquity), was replaced by productive lending that finances means of production and actual economic growth.

But in reality, modern banks don’t lend money for production. They say, “That’s the job of the stock market.” Banks only lend if there’s collateral to grab. They lend against assets in place. So the result of more bank lending is to increase the price of the assets that banks lend against — on credit! This way of “wealth creation” via asset-price inflation is the opposite of real substantive progress. It enriches the narrow class of asset holders at the top of the economic pyramid.

JS: What about the stock market?

MH: The stock market no longer primarily provides money for capital investment. It has become a vehicle for bondholders and corporate raiders to borrow from banks and private funds to buy corporate stockholders, take the companies private, downsize them, break them up or strip their assets, and borrow more to buy back their stocks to create asset-price gains without increasing the economy’s tangible real asset base. So the financial sector, except for a brief period in the late 19th century, especially in Germany, has rarely financed productive growth. Financial engineering has replaced industrial engineering, just as in Antiquity creditors were asset strippers.

The one productive activity that the financial sector engaged in from the Bronze Age onward was to finance foreign trade. The original interest-bearing debt was owed by merchants to reimburse their silent partners, typically the palace or the temples, and in time wealthy individuals. But apart from financing trade – in products that were already produced – you’ve rarely had finance increase the means of production or economic growth. It’s almost always been to extract income. The income that finance extracts is at the expense of the rest of society. So the richer the financial sector is, the more austerity is imposed on the non-financial sector.

You can pick up the first book in the trilogy, …and Forgive Them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Yearat Castalia Direct.


Ensafening Wisconsin

We’re announcing tonight that undocumented folks will be eligible to receive driver’s licenses and ID cards. This makes our roads and our communities safer, and helps strengthen our economy and Wisconsin families.
– Governor Tony Evers, Wisconsin

Well, if it strengthens the economy, then it must be good. Pursuant to which I note that the Japanese economy exploded upward after it invaded Manchuria. Perhaps Governor Evers should consider that as a next step.