Baltic Dry Index. 1355 +23 Brent Crude 53.75
"In
economics, hope and faith coexist with great scientific pretension."
John
Kenneth Galbraith
With America blinking at the UN Security
Council over North Korea, and the damage from hurricane Irma far below last
Friday’s worst fears, everyone outside of Florida, parts of the Caribbean, and
parts of south Texas, went back to business as usual, and that business was the
inflating of stock market bubbles. I mean really, who has time to fret over
hurricanes and wars.
Below, business as usual after Uncle Sam gets
the UNSC to pass only token sanctions on North Korea. This time it’s different.
This has to be seen as a big win in Pyongyang, Beijing, and Moscow.
Somebody has to
be on the other side.
George Goodman,
aka Adam Smith. The Money Game. Why Are The Little People Always Wrong.
September 12, 2017 / 2:00 AM
Asia shares hit 10-year high on Irma, North Korea relief
TOKYO (Reuters) - Asian shares hit a 10-year peak on Tuesday with
investors breathing a sigh of relief as North Korean fears eased slightly and
the worst-case scenario from Hurricane Irma looked to have been avoided.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.2
percent to its highest level since late 2007. Japan’s Nikkei added 1.0 percent.
On Wall Street on Monday, U.S. S&P 500 Index surged over 1 percent
to a record high close of 2,488 while MSCI’s broadest gauge of the world’s
stock markets covering 47 markets also hit a new record high, having made its
biggest gains in about two months.
Insurers were among the biggest winners, with the MSCI World’s insurer
index rising 1.5 percent on Monday, as insured property losses from Hurricane
Irma’s are expected to be smaller than initially forecast.
Downgraded to a tropical storm early on Monday, Irma had ranked as one
of the most powerful Atlantic hurricanes recorded. It cut power to millions of
people.
Adding to an uptick in risk appetite was relief that North Korea did not
test-fire missiles or conduct nuclear tests over the weekend as some had
feared.
The United Nations Security Council unanimously stepped up sanctions
against North Korea on Monday over the country’s sixth and most powerful
nuclear test on Sept. 3, imposing a ban on the country’s textile exports and
capping imports of crude oil.
Still the measures were less severe than Washington’s initial proposal
and U.S. Ambassador to the United Nations Nikki Haley said the United States
was not looking for war with North Korea and that Pyongyang had “not yet passed
the point of no return.”
“The measures did not include an outright ban on oil supplies to the
regime, so the threat of an immediate military confrontation appear to have
eased for now,” said Mutsumi Kagawa, chief global strategist at Rakuten
Securities.
Yet many investors are wary of possible retaliation by North Korea
against the latest U.S. sanctions following its nuclear test earlier this
month.
More
Up next, how America found its “money tree”
after the Great Nixonian Error of Fiat Money. We all know how this debt
mountain story ends, just not when or why. Unrepayable debt gets written off.
Either by default, Latin America style, or hyperinflation, Germany style. Stay
long some fully paid up, physical gold and silver as insurance. Just be sure to
hold it outside of the ever more dodgy financial system.
But the U.S. government has a technology, called a
printing press (or, today, its electronic equivalent), that allows it to
produce as many U.S. dollars as it wishes at essentially no cost. By increasing
the number of U.S. dollars in circulation, or even by credibly threatening to
do so, the U.S. government can also reduce the value of a dollar in terms of
goods and services, which is equivalent to raising the prices in dollars of
those goods and services. We conclude that, under a paper-money system, a
determined government can always generate higher spending and hence positive
inflation.
The U.S. is now over $20 trillion in debt — here’s how it got there
Published: Sept 11, 2017 5:23 p.m. ET
Fighting wars, big tax cuts and economic stimulus packages have all added to the debt burden
The U.S. has exceeded $20 trillion in national debt — the nation was a cool $20.16 trillion in the red as of Friday — and now that it’s crossed that mark, get ready for some finger pointing over who’s to blame.If history shows anything, it’s that both parties share responsibility for boosting the debt. Fighting wars, big tax cuts and economic stimulus packages have all added to the burden over the years.
Here, we’ll take a look at some key moments in the debt’s trajectory until now, and also where it is going.
In August 1981, with the U.S. at the
beginning of a recession, President Ronald Reagan signed major tax cuts into
law. While Reagan’s supporters credit the cuts in tax rates with juicing the
stock market and the U.S. economy, the downside was obvious: less money flowing
into the government’s coffers. A U.S. Treasury paper shows the 1981 act reduced
federal revenue by an average of $118 billion a year (in today’s dollars)
during the first four years.
President George W. Bush also signed
tax-cut packages into law in 2001 and 2003. Individual-income tax rates were
cut, as were taxes on capital gains and dividends. This table shows where the
Bush tax cuts fall in size compared to other major bills. President Barack
Obama extended the cuts for two years in 2010, and made most of them permanent
in 2012. Kathy Ruffing, a consultant to the Center on Budget and Policy
Priorities, has estimated that the cuts originally enacted during the Bush
years will account for $5 trillion of debt outstanding through fiscal 2017.
That includes interest.
The U.S. spent heavily on the wars in
Afghanistan — which the U.S. invaded after the Sept. 11, 2001 terrorist attacks
— and Iraq. According to consultant Kathy Ruffing, the two wars account for
about $2 trillion of the debt, including interest.
The year-and-a-half long Great Recession
began in December 2007, brought on by the collapse of the U.S. housing market.
The downturn spanned the Bush and Obama presidencies, and heralded the
ballooning of budget deficits as the government responded with huge bank
bailout and stimulus programs. In fiscal years 2009-2012, deficits exceeded $1
trillion.
With the U.S. still reeling from the Great
Recession, President Barack Obama signed the American Recovery and Reinvestment
Act in February 2009. In addition to tax cuts, Obama’s stimulus bill spent
billions of dollars on unemployment benefits and infrastructure projects. Obama
said the plan would be “a major milestone on our road to recovery,” but
Republicans trashed the measure as a waste of government money. Originally
scored at $787 billion, the Congressional Budget Office in 2015 put its price
tag higher, at $836 billion. Including interest payments, it added $1 trillion
to the debt through fiscal 2016, according to the Committee for a Responsible
Federal Budget.
More
Below, London wins again. Personally, I blame it on
Brexit, Barnier and Juncker plus all those other EUSSR presidents. Without
their help in holding back continental Europe, just think where poor old London
would be. Dublin number 30, Paris 26, Luxembourg 14. Thanks to J-C & B, and
the others, Frankfurt couldn’t even get into the top 10, finishing 11. Keep up
the good work, J-C & B, and the others.
London Retains Its Crown as World’s Top Financial Center
By Gavin Finch
11 September 2017, 11:46 GMT+1
London retained its crown as the world’s top financial center in a
ranking that surveys industry professionals, extending its lead over New York
and Hong Kong despite ongoing uncertainty about the implications of Brexit.
The U.K. capital fell only two points in the latest Global Financial
Centres Index published by Z/Yen and the China Development Institute, the
smallest decline among the top 10 centers. New York held on to second place,
but fell 24 index points overall, “presumably due to fears over U.S.
trade,” the survey said.
Frankfurt, Dublin, Paris and Amsterdam -- all set to gain banking jobs
that will likely have to leave London -- all rose. In Asia, Hong Kong
leapfrogged Singapore into third place, while other U.S. cities followed New
York in losing points.
"Overall assessments for the European centers continued to
fluctuate as people speculate about which centers might benefit from London
leaving the EU," Mark Yeandle, associate director of London-based think
tank Z/Yen and author of the FCI, said in the study, released Monday.
“Protectionism and barriers to international trade concern many -- especially
in the USA.”
London’s role as the world’s banking hub is under threat if Brexit costs
firms based in the city their ability to easily serve clients across the
European Union. Most international banks currently sell their goods and
services throughout the bloc from bases in London, but those so-called
passporting rights are unlikely to be extended after the U.K. quits the EU in
2019.
The index has been released twice yearly since 2007, with the three
major Asian centers gradually closing the gap with London and New York over the
decade. It ranks 92 cities on a 1,000-point scale, combining data ranging from
tax rates to crime from bodies including the World Bank and OECD with survey
responses from more than 3,000 people, addressing broad areas including the
business environment, infrastructure, human capital and reputation.
We close for today with EUSSR news. Did
somebody just mention the war? Brexit now, as in tomorrow.
Poland Sees Legal Grounds to Demand War Damages From Germany
By Wojciech MoskwaParliament’s legal-analysis bureau said in an opinion published on Monday that wartime reparations haven’t “expired or lost validity” and that Poland was short-changed on previous German efforts to pay damages for the 1939-1945 war. The Polish government, which finds itself increasingly isolated in the European Union amid accusations it’s eroding democratic standards, hasn’t decided whether or how to pursue any claims.
“The body of international law, as well as Germany’s postwar policies in regard to reparations, including the discrimination of Poland and Polish citizens relative other countries that sustained smaller material and human losses but gained much higher damages, support Poland’s claims to gain wartime damages from Germany,” the panel said.
Calls for reparations from the war, during which about 6 million Poles -- half of them Jews -- were killed, are souring ties between the EU’s largest eastern member and Germany, the bloc’s paymaster. Material losses resulting from the conflict amount to about $1 trillion, more than twice the country’s gross domestic product, Polish Interior Minister Mariusz Blaszczak said this month.
‘Political Context’
Unlike western European nations that settled claims in the decades after World War II ended, Poland signed its postwar border treaty with Germany only in 1990, a year after the collapse of communism. As part of the Soviet bloc, Poland didn’t take part in the U.S.-funded Marshall Plan that helped rebuild western Europe.The parliamentary legal-analysis bureau said Poland’s one-sided declaration from 1953, where it promised not to seek further reparations, was “initiated” and carried out by the communist authorities under “pressure” from the Soviet Union. The document’s ratification process was botched and it referred only to damages from East Germany, not all of Germany, it said.
More
“Beyond
this, the problem is universal. It is that governments are now held responsible
for the welfare of the people. The aspirations of the people can outrun their
ability to pay for them, and nobody has yet found a way to create answers to
the aspirations out of thin air.”
George
Goodman, aka Adam Smith, The Money Game. 1968.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, hurricanes over for now, hurricane season runs until November 30,
the practical difficulties of rebuilding in hurricane zones. While the article
below is specific to Houston, Florida has the added problem of restoring power
over a very large area, and the added costs associated with bringing in
supplies and material down a long relative narrow peninsula. Florida also has
extra costs associated with disposing of construction debris.
Remember Houston? On Repairing/Rebuilding 100,000+ Damaged Houses
Sep 11, 2017 9:18 AM
Almost lost in all the dollar estimates of
property damage is the human loss, suffering and stress.
I am not an expert in repairing flood damage, or in dealing with
insurance companies, FEMA or all the other pieces that will go into homeowners
getting the funding needed to repair or rebuild their homes.
But I do know a bit about construction after 44 years in the field, and I
have been soberly reflecting on the many hurdles that face everyone involved in
restoring / repairing tens of thousands of homes, more or less all at the same
time.
Preliminary estimates set the number of flood-damaged homes in Houston
at around 100,000. More recent estimates put the number at around 40,000.
No one yet knows how many homes in Florida have been damaged by
Hurricane Irma, but the number will undoubtedly be a big one.
Here are some semi-random thoughts on the challenges of
repairing/rebuilding so many dwellings in as short a period of time as
possible:
1. The average cost of homes in Houston is reportedly around $300,000.
Many coastal areas in Florida are similarly valued. Just as a guess, many of
the affected homeowners probably have mortgages in the $200,000 range.
It's been reported that only 1 in 6 in the affected areas of Houston
have flood insurance, suggesting 85% of those whose homes were rendered
unlivable will need to borrow money to fund the repairs.
It seems federal agencies offer homeowners loans for this purpose, or
access to what is effectively a second mortgage.
If the repaired home will be worth $300,000--questionable, perhaps, for
those houses which have been repeatedly flooded by lesser storms--then how much
money will homeowners be willing to borrow to keep the home?
If a homeowner has $50,000 equity and a $200,000 mortgage, and he has to
borrow $100,000 to make the home livable and replace all the ruined contents,
does it make financial sense to have $300,000 in mortgages on a house that's
worth $250,000? How much is the emotional connection to the home and
neighborhood worth?
How many homeowners simply can't afford to borrow the sums needed?
If the homeowners affected by Hurricane Katrina are any guide, between a
quarter and a third of those without flood insurance might "jingle
mail" their mortgage/title to their lender, i.e. abandon the property via
default, leaving the lender to deal with the repair or demolition costs.
Lenders are notoriously reluctant to dump tens of thousands of dollars
into abandoned homes without a clear projection of the financial pay-off to
investing substantial sums in defaulted properties.
2. What happens to property values in neighborhoods in which numerous
homes are unrepaired or abandoned? If history is any guide, property values
decline sharply until the point that the neighborhood has been restored to its
pre-damaged state. That is typically several years at best and a decade or
longer in sub-optimal conditions.
3. Every construction project will need plans and specifications, a
building permit and inspections of the construction progress for both the
city/county and the lender. Do the affected cities have enough building
department staff and inspectors to handle this massive wave of permit
applications and inspections of tens of thousands of scattered jobsites?
4. It's much easier to build a subdivision of 100 nearly identical homes
on a single parcel than it is to repair/rebuild 100 homes distributed over a
wide area, each with a mix of unique problems to deal with.
In other words, it's very difficult to achieve any economies of scale in
repairs/rebuilds of thousands of homes of various ages and designs beset by
varying degrees of damage.
5. The building materials industries of North America are large enough
to ramp up production to supply whatever materials are needed, but the skilled
labor required is another story.
Demolishing waterlogged drywall and paneling, removing ruined flooring,
carpets and furniture, etc. are fairly low-skill tasks that can be completed by
relatively inexperienced workers. But tasks such as removing and replacing
electrical wiring and outlets, installing new panel boxes, reframing damaged
roofs, etc. do not lend themselves to lightly trained, inexperienced workers.
It seems likely that the local experienced work force will quickly be
committed (at much higher rates of compensation, of course), leaving many
homeowners scrambling to find contractors who can restore their house to
livability.
6. It can be very difficult to tell the difference between a
fly-by-night "contractor" who smells opportunities for fraud and a
legitimate builder who moves in seeking legitimate work. All sorts of
verifications of legitimacy can be faked: contractors' licenses, referrals,
etc.
7. Even experienced contractors can get over their heads if they take on
more work than they can manage. In times of high demand, contractors can accept
jobs that they would be able to complete in normal times. But all sorts of
contingencies can arise that make it difficult for contractors to perform all
the work they committed to: subcontractors can suddenly announce they're no
longer available, workers can quit to go out on their own, financing and
permits can languish and then all get approved at once, materials can suddenly
become scarce--the list is long.
8. Each of these challenges could become a logjam that delays the
rebuilding: some homeowners will contest insurance claims, others will find
the permit process has slowed to a crawl, others will struggle to get the
second mortgage process completed, and still others will have the money lined
up but be unable to find an experienced contractor to do the work.
9. How committed are homeowners to their neighborhood if it is in a
flood plain? how old is the neighborhood? How many residents have lived there
for decades? These are seemingly ephemeral issues in the dollars-and-cents
calculations of total losses and insurance claims, but they matter to those
making the decision to stay and rebuild or pull up stakes and move to less
vulnerable locales.
10. Disposing of the enormous quantities of construction debris
generated by widespread flooding and other damage is another process we
typically take for granted: debris boxes appear and are hauled off to some
faraway place for disposal. But existing facilities might well be overwhelmed
by the sheer mass of construction-related debris.
More
NOT even a decade ago, everybody believed. Events
did seem under control. Inflation would creep, not gallop; the New Economics
would fine-tune the economy; productivity would increase; wars would be fought,
but not by us—we were the mediators, understanding but tough; problems would be
articulated, and that articulation was half the solution; we would begin upon
the solutions. Kennedy rhetoric: let us begin; let the word go forth; let us
never negotiate from fear, nor fear to negotiate; let anybody call upon us.
Confident, ambitious, optimistic, even naïve—the very best of the American
tradition. Hail Columbia, happy land.
Then, one thing and another, the John Philip Sousa music
faded a bit. Could rational men make events behave rationally? Maybe they
couldn’t.
George Goodman, aka Adam Smith, Supermoney, 1972.
Technology Update.
With events happening
fast in the development of solar power and graphene, I’ve added this section.
Updates as they get reported. Is converting sunlight to usable cheap AC or DC
energy mankind’s future from the 21st century onwards?
Offshore Wind Costs Fall Below New Nuclear Plants in U.K.
By Anna Hirtenstein
11 September 2017, 08:12 GMT+1 11 September 2017, 09:43
GMT+1
The cost of generating electricity from offshore wind farms fell sharply
in the U.K. to below the price the next nuclear reactors will charge, making
the form of clean energy one of the cheapest ways to supply the grid.
In a government auction that handed out power-purchase contracts worth
176 million pounds ($232 million) a year, all of the bids to build offshore wind
farms and other renewable technologies were below the 92.50 pounds per
megawatt-hour price awarded to the controversial Hinkley Point atomic plant due
to be complete in the next decade.
“This is a breakthrough moment for offshore wind,” Matthew Wright, managing director for Dong in the U.K. said in a statement. “It will also deliver high quality jobs.”
This was the U.K.’s second contracts-for-difference auction, where would-be developers compete for projects by bidding the price it would be willing to accept for its electricity. The contest was for “less-established technologies” such as offshore wind, tidal and anaerobic digestion.
Cheaper Power
The power-purchase agreements are fixed for 15 years with a CfD mechanism. If the wholesale rate is lower than the set price, the government pays the developer the difference. If it’s higher, the company reimburses the state. Wholesale power prices in the U.K. have averaged about 47 pounds per megawatt-hour over the past year.The government said the contest indicated it’s succeeding in drawing in investment needed to replace aging power plants with low-pollution forms of generation.
“We’ve placed clean growth at the heart of the industrial strategy to unlock opportunities across the country, while cutting carbon emissions,” said Richard Harrington, minister for energy and industry. “The offshore wind sector alone will invest 17.5 billion pounds in the U.K. up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.”
More
Abandon the Hinkley Point nuclear power plant now.
The monthly Coppock Indicators finished August
DJIA: 21,948 +215 Up. NASDAQ: 6,429 +266 Up. SP500: 2,472 +174 Up.
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