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2018-07-21 11:20 by Karl Denninger
in Editorial , 174 references
[Comments enabled]  

Right here.

As many times as it takes before you get it, read that.

I don't know if you'll need to read it once, twice, 100 or 500 times.

But you had better read it as many times as it takes to sink in, and internalize what is there -- because this is not opinion, it is fact and that fact is known to the powerful men (and women) who make decisions on which everything that occurs in this nation rests.

Powell is the chair of the Federal Reserve.  It has long been argued, and in fact Powell argued himself just the other day, twice, that "trade disputes" could harm the economy.  But what he admitted is that wage growth is not occurring because of slave labor and environmental abuse.

Whether the abuse occurs when Apple uses the much-vaunted "global supply chain" to buy screws for its iPhone frames from a firm in Malaysia that knowingly courts and employs slave labor in the form of "undocumented" workers who are serfs to make said screws or whether it's when some boutique firm that makes $1,500 handbags buys its leather from a tannery in Bangladesh that knowingly poisons the water, or when some Chinese firm steals technology and then ships counterfeit parts labeled as "real" (which, by the way, have been found in safety-critical systems of airliners) the point is the same.

So-called "free trade" is a bald lie.

We were told by all these people that NAFTA would turn the $4/hour Mexican manufacturing labor rate into a $25/hour rate over the space of a few years, and that would result in a rapidly-growing Mexican middle class that would demand more goods from American companies.  In other words the economy on a global basis would expand so fast and wage disparity, which was obvious at the time, would not persist.  In other words it would make no sense for American firms to offshore to exploit that slave labor because it would almost-immediately disappear, meaning the impetus to move those factories would in fact be due to local demand for the products they made.

That was a lie.

NAFTA was signed in 1994.  In 2001 Bush gave China "PNTR", or "Permanent Normal Trade Relations."  Both were sold to Americans as expanding economic opportunity for Americans of all stripes and levels of ability.

Both were lies.

It is now nearly 25 years after NAFTA and the Mexican factory labor rate is still about $4/hour -- with no benefits.  In the US an utterly enormous number of jobs paying $25/hour plus benefits have permanently left America for Mexico.

China is even worse; since PNTR was signed virtually all of our electronics assembly has left America.  

In 1998 Zenith closed its Melrose Plant in Chicago, the last bastion of American television manufacturing.  That plant is permanently gone due to the slave labor in other nations -- specifically China and other Asian countries.  The entirety of American textiles manufacturing has gone to places like Bangladesh where there is no OSHA, there is no regulation, there is effective slave labor and there is exploitation of child labor as well.

I have a shirt on right now that says "made in Mexico."  The pair of underwear I have on right now was made in Vietnam.  The pair of shoes I am wearing was made in China.  I'd love to buy all three from an American company made here but there are none!

Do you really think the $100 pair of Altras that I have on right now would cost more than $100 if made here in America?  That's utter nonsense, just as is the claim that the car would cost $6,000 more if made here than in Mexico or that the iPhone would cost $1,200 instead of $1,000.

If the companies that sell those products could charge $1,200 for an iPhone today and actually get people to buy them they'd do that right here, right now.  If Chevy could get an extra $6,000 for that car, they'd charge the extra $6,000 and keep it right here, right now.  If Altra could charge $150 for a pair of running shoes instead of $100, they'd do it right here, right now.

Never mind the fact that there is probably $3-5 worth of physical material in said shoes.

No, folks, the price would not go up.  What would go down is operating margins.  And, quite-probably, stock prices because so would profits.

But at the same time what would go up would be job opportunities for everyone on the left side of the bell curve, which is fully half of Americans.

If you give a damn about the issue of "income inequality" and "equality of opportunity" then this is where you must focus your attention to the exclusion of everything else because the impact, if you correct it, will be enormous, immediate, permanent and lift fully half of this nation's people in their standard of living -- everyone who happens to fall on the left side of the bell curve of intelligence and ability.

If you don't demand and enforce a shutdown of the slave labor and rampant abuse by the Chinese and others in the name of so-called "free trade" then what you are supporting and demanding is the continued intentional systematic abuse of half the citizens of this country.

You were sold "free trade" with lies.  The people who sold it to you knew they were lies, and now they've been proved to be lies.

It is time to shut them down, take them out of the political and business systems, strip them of their power and consign them to live under the very freeway overpass they want to consign half the American population to.

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2018-07-18 11:16 by Karl Denninger
in Editorial , 174 references
[Comments enabled]  

I'm tired of this horse**** and those who promulgate it and then cause the nation to self-destruct, along with intentionally blowing asset bubbles through this policy that destroys the lives of millions, need to have that behavior defined as a death-sentence felony with punishment to be meted out by public hanging.

Kudlow once again ran the same crap he ran during the Reagan years about "supply-side" tax cuts, admitting that they boosted deficits (duh) but trying to argue they were akin to a business investment and would be recovered through higher growth.

The problem is he lied about the outcome; what he claims never happened during Reagan's years in office.  The Fed Z1 along with the GDP series proves this.

Further, it's not going to happen now either -- OMB says we'll run north of a trillion in deficit in fiscal 2019.  The import of this is that such a figure would be right around 5% of GDP.

This means in order for the economy to "pay that back" the growth rate would have to exceed 5% GDP in nominal terms over a period of years without further expansion of the debt.  This has never happened because the deficit spending never stops.

Kudlow knows this because he was there for the Reagan stupidity and yet he continues to run this crap, knowing he's lying.  In fact it's much worse than it first appears because the borrowing at "ever lower" ratcheting down interest rates by other actors, other than the federal government, also adds to nominal GDP yet that addition is factually false.

This is basic arithmetic folks; you must measure a thing in non-variant units if you wish to know if that thing is expanding or contracting.

Consider the measure of a "foot" as a unit of distance.  If a "foot" was defined as the length of the right foot of the King, but when you began with this measurement the King was 4 years old, then in 20 years' time could you tell me a "foot" of length was the same as a "foot" of length 10 years prior?

Of course not and any attempt to do so would be instantly laughed down as beyond stupid.

Since the amount of circulating money and credit is the denominator of the unit of dollars then in order to determine the actual GDP in invariant units, that is whether the economy is actually expanding or contracting, you must subtract from the change in a given unit of time the addition of money and credit during that same period of time exactly as you must adjust for the growth of the King's foot in order to determine whether a foot today is equal to a foot tomorrow.

When you do this you find that at no time -- not for one quarter during Reagan's Presidency -- did actual economic output during Reagan's Presidency expand.  What expanded was nominal GDP but the entirety of the "expansion" plus more was actually the expansion of the public debt and other emission of credit.

In other words in an SI, that is, an invariant unit, economic output actually contracted the entire time, and that has, with few and short exceptions, continued since!

How do we know this is true, beyond mathematics which are not suggestions?

Well, what percentage of the people are on food stamps?  There are 42 million on them today, and the last time we saw this level of "unemployment" that number was 17 million.  That's more than a clean double.  If GDP is so great then why are there twice as many people, plus more, unable to afford to buy their own food?

Is that the only example?  Of course not but it's a damnably glaring one, and impossible to ignore.

In the end, however, the bottom line is that mathematics does not hew to either suggestions or politics.  It just is.

You can fake alleged "growth" by cranking up deficit spending for a while but the only way any organization, government or otherwise, can continue to debt-finance consumption is for rates to continually decrease so you can continue to roll over said debt at ever-lower interest expense.  The laws of mathematics make such an exercise literally impossible to maintain on a permanent basis and refusal to recognize and deal with that means that the deeper you have dug the hole before you're forced to stop the more it will hurt and the more people will be abjectly ****ed and even die as a consequence.

Those who press these policies should be held accountable, directly and criminally, as murderers -- because they are.

Take your spot in line for the gallows Larry.

You've earned it.

Oh, and **** you CNBC for repeatedly running that knowing lie, to which you willingly subscribe and promulgate for profit.

PS: Powell just admitted the entirety of the above (other than my recommendation to make pumping this crap a capital felony, of course.)  "US Fiscal Policy has been on an unsustainable path for some time.  It continues to be unsustainable."  One truth-teller who will be completely ignored -- right up until the gallows get built, with or without that law being passed first.

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2018-07-15 07:50 by Karl Denninger
in Editorial , 273 references
[Comments enabled]  

Elon Musk and Tesla have been the essence of cult behavior.

Elon claims to be a socialist.  But he's in the rarified 0.001% of the population and has done exactly nothing for the 99.999% below him.  Indeed, his primary "contribution" these days is to sell $100,000 cars to very rich people, who are the only ones that can afford them.  His much-claimed "$30,000" vehicle, allegedly intended to be "available" to anyone, has not shipped one single unit configured that way -- instead they're all nearly double that price as he has intentionally refused to ship anything "ordinary" people can afford.

How much of his wealth has he given to the poor?  Statistically-speaking -- zero.  Ditto for the fancy house and all the other things he enjoys.  Does he let the refugees come in and have some A/C on his dime, a place to crash and a beer from the fridge?  Oh hell no.

Then there's the fact that the company has never made a single penny in profit, but has stolen billions from taxpayers.  "Stolen" is the right word too -- I certainly didn't consent to having the tax money taken from me, but it was -- and from you.  Elon of course justifies this as "combating a global evil" ("global warming") which is predicated on utter garbage "science", never mind that his claim of "helping" is a bald lie -- all he has done is moved where the pollution takes place, never mind the lithium mining necessary to build those cars -- nearly all of which consumes a huge amount of fossil fuel and is done overseas on purpose so the toxic wastes produced can be emitted into the air and water with impunity.

His latest stunt was especially galling -- he showed up with a "mini sub" -- sort of -- for the kids stuck in the cave. When rebuffed and told to get out and stop grandstanding he tried to call the people actually doing it unqualified.  Well Elon, said "unqualified" people got all the kids and their coach out alive, and furthermore they were there, knew the environment and clearly did have it figured out where you didn't -- and they rightly told you to stick your toy sub and self-aggrandizing garbage where it hurts.  Good for them and **** you sideways with your 5-alarm bull****.

That wasn't enough.  Musk doubled-down and called one of the subject-matter experts (who actually did it) a pedophile in a since-deleted tweet.  It appears that someone might be a bit mentally unstable, eh?

Cults often have very wealthy leaders for one simple reason -- they con everyone else out of money and claim to be doing "God's work" in some fashion in the process.  Elon is no different than the megachurch pastor, other than being more financially successful at it.  And the wreckage he has left behind in the process, including a woman who fell for his bull**** and was nothing more than a trophy to him, along with the children she bore, is so cliche' that it barely bears mentioning.  Oh, then there was #2, and, well, who knows what has and will follow other than a bunch of cock-holsters who, I'm sure, are not at all attracted to his ability to summon up a carbon-emitting private jet to take them wherever he wants -- when he wants, not when SHE wants.

But heh, he's good for the planet even though he has a personal carbon footprint that likely looks something like that of a small city, right?

smiley

The problem is that all these shibboleths are from the far left side of the aisle -- especially the "save the planet" garbage.  And now Musk has been caught giving money to..... surprise surprise -- Republicans.

Oops.

He "defends" this as saying it's for access, which is even worse!  Now the King of allegedly "good" behavior to "save the planet" is admitting to political bribery, in public.

That ought to go over well with the Social Justice types, even though it might be accurate.

You have to wonder if this is the time he finally blew his own brains out by shooting off his mouth.  The latest has engendered plenty of people talking about canceling Tesla car orders or even attempting to return delivered vehicles.  Of course it's easy to run your yap on social media but the problem with cult leaders, especially those who are indebted up to their eyeballs as Musk is as he's insane enough to buy his own firm's stock with loans, essentially taking a margin loan on himself and the company, resides in the fact that their continued high-flying lifestyle and ego are both dependent on continuing to fill up the pews on Sunday -- or asses to fill the seats of overpriced cars built in tents that come with their own crematorium built in -- just add a random car accident to push the button.

I'm looking forward to the day Elon hears two little words: Margin call

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2018-07-15 07:00 by Karl Denninger
in Editorial , 183 references
[Comments enabled]  

Read this and see if you can find the idiocy in it:

Former FBI lawyer Lisa Page’s action shows that the deliberate destruction of congressional subpoena power is complete and reveals the impotence of Congress to compel evidence. As a result, the ability of Congress to perform substantive oversight is compromised. Only when she was threatened with contempt of Congress proceedings did Page agree to voluntarily appear for a private interview on Friday, Rep. Bob Goodlatte, R-Va., said Thursday.

Page may yet testify at a public hearing before Congress. But why does she or any other government witnesses get to dictate the terms and timing of their own testimony?  How many of us who are not federal employees would dare refuse a subpoena from Congress? How many of us would even get away with it?  

As I explain in my forthcoming book, “The Deep State,” Attorney General Jeff Sessions’ inexplicable failure to prosecute subversions of congressional authority played no small role in my decision to resign from Congress and the House Oversight Committee last year. I knew what harm the attorney general’s wrong decision would cost Congress and the public.

"Wrong decision"?

May I remind the Congressman that there is a remedy available in the Constitution for this sort of thing?  In fact there are two remedies -- one more drastic than the other, but both are equally available.

First, Congress can impeach Sessions.  Yes, that might fail in the Senate to get a conviction (although I don't know I'd bet on that -- you'd probably get most of the Democrats to go along with it!) but the mere act of doing it would destroy his credibility.  Further, it's the correct remedy for a rogue member of the US Executive; impeachment is clearly indicated here.

Second, Congress has absolute power of the purse.  It can refuse to fund the department Sessions heads specifically in its budget and there is nothing the President (or anyone else) can do about it.  That powers rests in a plenary form in the House; neither the Senate or anyone else can do a damn thing about it.  That's a "nuclear option", of course, in that it cannot be directed at a person, but it can be directed at a department or division of a given department.

Since when does the DOJ get to choose which crimes it prosecutes and which it does not?  Contempt of Congress is a criminal act.  Criminal contempt is punishable by jail until you comply, provided you're able to comply (you cannot be jailed on criminal contempt for refusing to do that which is impossible.)  In this case Pagliano is clearly able to comply but has refused.  He can, and should be, jailed for this.

Now everyone can snub Congress, because Jeff Sessions refused to see the bigger picture. He can’t say he didn’t know. I applied heavy pressure. I told him exactly what was at stake. He made the wrong choice. Now America will pay for it. Getting to the truth just got harder.

No, you'e a pussy Mr. Chaffetz and have absolutely no business being a commentator on any network.

You had a duty to the Constitution to bring articles of impeachment against Jeff Sessions and you, along with the rest of Congress, have intentionally refused to do so and those remaining continue to refuse each and every day.

Your anger is not appropriately directed at Sessions alone and I note clearly that you have expressed no anger toward Paul Ryan, Mark Meadows or anyone else in the Republican Leadership or, for that matter, The Democrats in The House who could also craft such an impeachment petition and seek others to join them.  If the House Leadership tries to prevent that House procedure permits a discharge petition, and if a Bill of Impeachment is to succeed then so should the discharge petition.

Rather than take the very appropriate and available actions to solve the problem you instead quit and now whine about one man when the redress for Jeff Sessions criminal malfeasance of office was entirely within the US House of Representatives' ability to remedy.

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2018-07-13 11:25 by Karl Denninger
in Editorial , 522 references
[Comments enabled]  

Let me preface this by saying that the way Trump is going about this trade issue is wrong.  He's getting a better result than doing nothing, but the fact of the matter is that he's approaching it incorrectly, and it's by mere accident that the outcomes are working out.

Specifically, on outcomes, import prices are down and export prices are up.  How's that bad, exactly?

As I pointed out in Leverage in my section in recommending Wage and Environmental parity tariffs the problem with "free trade" policies is that they're anything but because you cannot control the legal environment in other nations.  As a sovereign said nation is free to set whatever internal legal environment it desires.  Short of an embargo or outright war you cannot compel another nation to adopt your view of human rights, workers rights or property rights, to name three obvious things.

Now couple this with two additional facts: Technology has shortened the effective distance and delay between a point of control and a point of action which lowers the imputed cost that comes with distance, and that corporations always exist for one purpose above all others: To make a profit.

Corporations operate in the legal framework permitted by the nations in which they have facilities and people.  If you wish to constrain a corporation's underlying purpose, which is to maximize profit, you must constrain the legal environment in which they operate.

There is no other way to do it.

It is a fact that throughout human history humans have attempted to enslave one another.  So long as one can compel someone to work in some fashion that does not reflect economic pressures you can profit from this, and some percentage of people will.  That person or organization will succeed on a profit basis where others who do not adopt that policy will fail.  This inevitably encourages such behavior until only those who engage in it remain in business!

As such the only constraint on such behavior is laws that are actually enforced so that the cost of such behavior is higher than the benefit.

GM is going to make the Blazer in Mexico because they can employ what amounts to legal slave labor in Mexico that carries an "all-in" cost of under $4/hour.  They will not sell any such trucks to the Mexicans building them because on a $4/hour wage nobody can afford to buy a $40,000 product.  GM incurs the shipping expense of the finished product back to America because it is lower than the labor differential expense were they to build that same truck for our market here.

Apple sources labor for the iPhone in China because it's cheaper than sourcing the same labor in the United States.  China has a huge number of people who live in abject poverty -- they're peasants.  China allows factories to come into those towns and literally destroy the means of survival (rice paddies and similar) that said people were formerly relying on -- either by paving them over and erecting a factory or by emitting pollution into the ground and water supply to the point that you can't grow a crop there anymore that won't poison you.  Those employees are not "at will"; they are factual slaves.

Apple (and others) source the screws for the frame of their device from slave labor factories in places like Malaysia.  Malaysia, and other Asian nations, have a thriving illegal immigration problem which they actively exploit.  Much like the "coyotes" who run Guatemalans to the United States as indentured servants, since no such person has the $6,000 average "fee" for such a service in advance, these nations allow the same practice.   We in fact do it here too; we "allow" employers to hire someone on an H1b visa but they are captives to that employer since their visa is bound to the entity that employs them.

Multiple large, "luxury" brands in America source tanned leather from similar third-world crapholes for the same reason.  Tanning leather requires the use of toxic chemicals and properly disposing of them is expensive.  It's (much) cheaper to dump them in the water (but that's illegal in the US) and, if you can obtain effective slave labor while destroying the environment there as well that tends to destroy the option of local people to subsistence farm at the same time then so much the better.  Ditto for all the clothes that come from places like Vietnam and Bangladesh.

Is this a "free market"?  Of course not.  But it does produce cheap screws -- both for Apple and up the ass of the people making them.

Now contemplate this: The average IQ in this nation is approximately 100.  Fully one half of the people are on the left side of the bell curve.  Those who are "business successes" as entrepreneurs, CEOs and similar are statistically all on the right side, and most of them are 2 standard deviations or better to the right -- that is, in the top 2% of all persons.

That's six million people, more or less, in the US.

What do you do with the 150 million-odd people who are on the left side of the curve?

Business and politicians alike ignore them in recent years, but had better not.  They're fully half the population and were there to be a civil war you might want to compute the odds of six million people surviving when 150 million decide to eat them.

If you're in that top 2% you're what's for dinner, irrespective of whatever sort of technological prowess or equipment you may deploy.  Oh sure, you'd slaughter a lot of those 150 million in the process, but you still die and so does your entire family.

Every.

Single.

Time.

But what happens if Trump lays tariffs that erase the benefit of employing slavery in other lands?  Let's say for example that Trump was to figure out the difference in labor cost in a Blazer between one built here and one built in Mexico.  It's not hard -- $4/hour there, $20/hour here times however many hours of labor are in the truck and all parts not made in America, plus the avoided environmental expense.  That's the tariff.

Now take Apple's iPhone.  How much would the screws and assembly cost here .vs. over there for all parts not made in America, plus the avoided expense in the non-US components made where environmental damage is not prevented?  That's the tariff.

Go down the list one at a time of everything we import and look at what costs are evaded by firms soliciting labor through other lands where the legal environment does not protect the right of free movement, the environment and similar.  That, by the way, is essentially everything this nation imports.  Set the tariff as equal to that evaded cost.

Now lay the same via taxes on any firm that employs H1b -- or the so-called "Seasonal worker" visas (H2a and H2b) .  Take the full imputed cost including salary and benefits of said person and, if lower than a US individual of the same skill set employed in the same job that's the tax due.

What happens if you do this?

Those manufacturers no longer have an economic reason to put labor there.  They will bring it here instead, by and large.  Further, watch how fast all those H2 jobs who people claim "can't be filled by Americans" suddenly can find all the employees they need!

The result is that all those people on the left side of the curve will have jobs that are sufficient to support themselves and their families.

But what if the manufacturers don't bring the labor back?  Then Treasury has hundreds of billions of dollars in surplus funds to cover the welfare costs of everyone on the left side of the curve.

Either way the outcome is the same -- we have a stable, thriving society.

No, your iPhone will not cost an extra $200 nor will your GM truck. If either company could charge another $200 or $6,000 for their products and still sell them here in the United States they would do it right now.  What prevents them from doing it is that they've determined that demand is insufficient to support that price.  That does not change if there is a tariff imposed.

So what will happen is that Apple's margin on said iPhone will go from 40% to 25% and their stock price will reflect that.  Likewise GM's margin on that truck (remember, they make more on trucks than any other vehicle) will come in and so will their stock price.

Neither company will admit this because if they do there is a very real risk that those 150 million on the left side of the curve will decide to eat the executives of said firms and the politicians that screwed them out of a job on purpose so the top 2% of the nation can make money through a rapidly advancing stock price!  See above for the survival odds of that ~6 million should the other 150 million take that decision.

That is why they lie repeatedly on this subject and in fact will never admit the truth.

Now the usual argument is that these other nations will "retaliate."  Let 'em.  If you think about it what's there to retaliate upon?  GM is a global company.  So is Apple.  Apple will build iPhones for the US inside the US.  They'll build the ones to sell in China in China.  GM will build trucks for Mexico in Mexico (if anyone can pay for them there.)  And so on.

That outcome isn't bad, it's good!  It's always more efficient to build something closer to the point of consumption.  Shipping is not free, never mind all the screaming about carbon emissions which are inevitably tied to moving crap around the world!

Trump is getting a good result even though he isn't doing it the right way.  Both he and Navarro are trying to look at this as a function of "trade balance" in dollars, which is the wrong approach.  It happens to be working (although the stock market has yet to recognize the loss of imputed valuation due to ending slave labor) essentially by accident.

We ought to turn it into "on purpose."

Now are there places we can have "free trade" with?  Sure -- we could, for example, have zero tariffs on cars between the US and EU.  Why?  Because the slave labor and environmental issues are mostly-absent in both nations when it comes to building cars up and down the supply chain.  But even with zero tariffs VW would be insane to build their cars in Germany for export to the US when they can build them here, as they're doing today.  Ditto for US automakers selling in Europe; why would you build a car here in the United States and then incur anywhere from $750 to over $2,000 in freight costs to move it across the ocean?  Do you really think these firms intentionally undertake $2,000 in loss to ship an SUV across the Atlantic?  If so you're nuts.

Wake up America.

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