Bad Monday

Some Monday mornings are better than others.  Others are worse than some.  For one Amazon employee, this past Monday morning was particularly bad.

No doubt, the poor fellow would have been better off he’d called in sick to work.  Such a simple decision would have saved him from extreme agony.  But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.

 

jumpGood-bye cruel world! On this our planet, ignoring air friction, wind and other buoyancy-enhancing obstacles for the sake of this example, someone jumping off a building that is high enough will eventually attain a terminal velocity of 122 miles per hour. The acceleration is 32.2 feet per second², which is why one has to start from an appropriate height (a skydiver in a spread-eagle position will typically reach terminal velocity after about 12 seconds, traversing a distance of 1,483 feet). Jumping without a parachute may provide an especially pronounced adrenaline high, but is generally not advisable; more often than not it will be a one-off experience.

 

From what we gather, upon arrival, he blasted out an email to hundreds of coworkers, including Chief Executive Officer Jeff Bezos, outlining several reservations he had with the terms of his “Performance Improvement Plan”.

After that, he executed a flawless swan dive off Amazon’s 12-story Apollo building, presumably to his death. Yet, somehow, he didn’t die.  He lived.  What now?

Quite frankly, we don’t quite know what this has to do with the economy by and large.  But we have an inkling there may be some relevance.  Perhaps it has something to do with an economy that is approaching self-destruct velocity, where every action has a far more negative reaction.

 

Trump!

President-elect Donald Trump was blessed with a stout sounding last name.  An onomatopoeia, of sorts.  Various synonyms for Trump include winner, decider, trump card, outdo, undermine, outmaneuver, outplay, surpass, beat, go one better, and the like.

Throughout his life, Trump has always lived up to his name.  As a reality TV star, for example, the stout man with a stout name made millions of dollars telling people, “You’re fired!”  People loved it.  They couldn’t get enough of it.

 

The Donald fires people left and right…

 

However, as President, Trump will inherit a steaming hot pile from his predecessors.  After a combined 16 years of George Dubya and Barry Big Ears, the U.S. National Debt has jumped from approximately $5.5 trillion to about $20 trillion.  That amounts to a 363 percent increase.

 

1-federal-debtberg The Federal debtberg in all its glory. What seems “normal” now was considered unimaginable when GW Bush’s reign began. At the time, some people were actually worried that  we would “run out” of treasury bonds, just because debt growth had flattened for a while under Clinton – which was primarily a bubble artifact – click to enlarge.

 

Yet, over this same time, U.S. GDP has only increased roughly 77 percent from about $10.5 trillion to about $18.6 trillion.  In other words, debt is increasing 4.7 times faster than GDP.  Similarly, the percentage of debt to GDP has more than doubled from about 52 percent to over 107 percent.

As President, part of Trump’s stated vision is to “create a dynamic booming economy that will create 25 million new jobs over the next decade.”  To do this, Trump intends to run massive deficits.  To finance the massive deficits, Treasury Secretary nominee Steven Mnuchin may have to issue 100 Year Treasury notes.

But what if this just accelerates the trend of rapid debt growth and lethargic GDP growth?  Wouldn’t that, in a sense, be a policy of economic self-destruction?

 

2-debt-gdp-ratioUS public debt to GDP ratio. The level it has now reached has historically been highly inimical to economic growth, not least because the much poo-pooed “Ricardo effect” is very likely quite real. We are referring to the idea that once government debt grows beyond a certain threshold, people in general, but especially entrepreneurs and capitalists, will take fewer risks and be more concerned with wealth preservation than wealth creation – for the simple reason that they all know the government will eventually have to get the money to pay for this debt from somewhere. Obviously, the entire citizenry will be in its cross-hairs – whether by taxation, debt default or inflation, the money will be forcibly taken. Prior to the advent of the modern welfare/warfare State, this was colloquially referred to as “theft” – click to enlarge.

 

Attaining Self-Destruct Velocity

One popular literary device of headline editors across the western world of late is to fuse the name Trump with another word.  Just this week, for instance, we discovered that Bernie Sanders – the socialist with a grumpy face – is an expert on Trumpism.  We also learned about the effects of Trumpflation and Trumpnado on the bond market.

Here Forbes clarifies the landscape with unequivocal certainty:

 

“Trumpflation is coming.  Everyone knows it.  It means higher interest rates in the U.S.  It means the end of QE, negative and zero interest rates in Europe and Japan.  It potentially means tariffs that will make prices of goods imported into the U.S. more expensive.  And, if president elect Donald Trump gets his fiscal stimulus pass the deficit hawks in congress, it means more money for the economy which could lead to wage inflation.  No American worker will complain about that.

But what do fixed income investors do now?  Especially after sitting on lousy yielding U.S. Treasury bonds for years?  Imagine those guys in Europe, holding negative yielding debt.  How on Earth do you sell that stuff?”

 

Since the election, the approach to selling Treasuries has been to sell them.  Hence, yields have gone up, prices have come down.  For example, since the election the yield on the 10 Year Treasury note has risen from 1.86 percent to 2.44 percent.

 

3-tnx10 year treasury note yield, daily.  How does one sell treasuries or other government bonds? The market has already answered the question posed by Forbes: one just sells them – click to enlarge.

 

Of course, rising interest rates will make financing the national debt more expensive.  Moreover, as deficit spending ramps up – maybe even to $2 trillion per year – the cost to finance the debt will compound.

One popular rationale for deficit spending by economic policy makers is that the effects of the fiscal stimulus will allow the economy to achieve escape velocity.  Under such a scenario, the economy would, somehow, be able to grow its way out of debt; the percentage of debt to GDP would come down.

However, over the last sixteen years, and even more so over the past eight, the grasp for escape velocity has come up empty handed.  Debt has mushroomed while GDP has stagnated.  Yet, regrettably, the effects of Trumpflation and Trumpnado will likely accelerate this trend.

Thus, rather than attaining escape velocity, like the Amazon jumper, the economy would attain self-destruct velocity.  Prepare accordingly for the extreme pain and agony that are coming.

 

Charts by: St. Louis Federal Reserve Research, StockCharts

 

Chart and image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

5 Responses to “Attaining Self-Destruct Velocity”

  • woodsbp:

    “One popular rationale for deficit spending by economic policy makers is that the effects of the fiscal stimulus will allow the economy to achieve escape velocity. Under such a scenario, the economy would, somehow, be able to grow its way out of debt; the percentage of debt to GDP would come down.

    Its probably a tad more complicated – ie: increasing your acceleration, because that is what ‘economic growth’ – in the correct Newtonian Mechanics sense, actually is. And please try not to confuse increasing your velocity (m/s) with increasing your acceleration (m/s/s) – ie: increasing your velocity (m/s) over time. Most economists and misled commentators commonly make this essential mistake.

    Economic growth is a physical process. You unbury, bash and burn raw stuff and you use technology to manipulate the raw stuff into useful stuff : you produce, that’s Plan A. The next bit, Plan B, has become a bit of a problem: selling your useful stuff to folk who are – and this is the VIP bit, both willing and able to purchase your produced stuff. Those consuming folk need to have incomes which are increasing (not stagnant nor declining) to make Plan B happen. As I said – there appears to be a problem with Plan B. So plan A looks a bit iffy.

    Theoretical ECON (ie: the Invisible Hand and the Magic Market) are merely that, theoretical. Real hands and real markets are fundamentally physical process subject to the immutable laws of nature and the iron rules of math – not to mention us useful idiot humans running interference. So. ???

    Just wish the President-elect good luck with that ‘economic growth’ wish list. He’s going to need all the help he can muster.

    Just a thought. Is virtual wealth actually real wealth? – you know, a ‘trans-substantiation’ sort of truism thingy? Like Copper and Zinc may be asserted to have the same properties as Gold and Silver?

    • HardMoney:

      The ECON people have this figured out for 200 years. It’s called Say’s law I.e., the people creating the stuff accumulate wealth that they then go and buy stuff with.

      The problem of course is when bureaucrats, politicians, and such commandeer our resources to build what they think we need. The demand will come – it just may not be for the stuff that is built/ produced.

      • woodsbp:

        What is wealth anyway? Is it related in any way to one’s waged-labour income or income from ‘rents’ or inherited or your endowment or what? Sure, one wealthy fellow could exchange something of value with another – that’s barter. Which is economically useless for the type of ‘economic growth’ that is so much in demand right now.

        There is little actual evidence that so-called wealthy folk actually release sufficient of that wealth such that it has the effect of expanding economic activity generally. However there is evidence that the equitable distribution of nett economic income achieves both a small, steady increase in individual wealth for many due mostly to the steady increase in economic activity.

        That Say’s Law is quaint in theory but in practice its nonsense. Imagine the manner in which money (metal or paper) has to be created and then ‘flow’ such that physical inventories have to be reduced; then the internal contradiction starts to become apparent. The Econ. are great at carving Modls. – like some peoples make and erect totems and monuments and then confidentthat the Gods will be pleased that all will be economically hunkydory. Has not worked out so well for most folk so far. Keep trying?

        “The problem of course is when … the wealthy commandeer our politicians (our government) to ensure that resources are used to further enrich the wealthy rather than ensure there is a more equitable distribution of wealth (aka: waged-labour incomes) to the majority. The reason that our western economies cannot expand at the necessary rate (3% p/a, compounding) is two-fold. Resources and resources. I’ll leave it to folks to figure out which is which are the hardware and which are the software.

  • No6:

    Amerika is now a slave nation.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • India: The Genie of Lawlessness is out of the Bottle
      Recapitulation (Part XVI, the Last) Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • To Hell In A Bucket
      No-one Cares... “No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.” We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.   The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...
  • Janet Yellen's 78-Month Plan for the National Monetary Policy of the United States
      Past the Point of No Return Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That's when the cucumber has pickled over and the prospect of turning back is no longer an option.   Depravity and bedlam through the ages. The blue barge of perdition in the...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com