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2023-09-20 07:00 by Karl Denninger
in Macro Factors , 503 references
[Comments enabled]  

We're going to make the wrong one because you, I, and the rest of the citizens of this nation won't demand AND ENFORCE the correct one.

Two two choices are:

  • Attempt to muddle through in the current border situation with the roughly 17 million, or somewhat over 5% of the US population here illegally and unable to work and pay taxes, about 20% of those arriving just in the last couple of years and essential none of them forced out, all of whom have few or no skills and are wildly-massive resource sinks, including disease, no capacity or care about others property and lives and more.

  • Attempt to continue to have a Federal Government that literally spends $3 for every $2 it takes in via taxes, much of which goes directly and indirectly to the above bullet point and what isn't covered is forced onto state and local budgets which they have no means to collect in taxes either.  All of this is directly inflationary; the era of being able to coast on the $300-400 billion a year in increased trade sequestration is permanently over as a result of sanctions leveled when the Ukraine-Russian hostilities began (not that this was a permanent situation in the first place; it was destined to eventually end anyway.)  If it isn't clear by now that 20% insurance increases on an annual basis and up to 50% or more in some places as businesses and consumes engage in fraud (aka "Florida") to try to stay above water, never mind the ramp in fuel and transportation costs and similar cannot continue and wildly exceeds that of wages, I don't know what someone is supposed to tell you other than "you're going to continue to get squeezed until you go bankrupt if you don't stop it", even though you don't want to hear it.

  • Attempt to continue to play the game that "housing is expensive because of tight supply."  No, housing is expensive because we set up a huge boom in refinances that were used to goose the economy through rate manipulation that Congress suborned along with President Trump and Biden, and the Fed went along with.  Yellen was personally and directly involved and instead of being hung out to dry she was rewarded with being Treasury Secretary, exactly as Geithner was after he machined up the 2007/08 blowup at the NY Fed desk.  Rather than be pilloried or even executed for the damage they did they got rewarded and you and I let it happen.

  • Attempt to continue to play the "college cost" game.  Same basic problem: Obama was just the last piece of it by federalizing loans but hardly the first piece.  Rather than resolve it we allowed a bunch of screaming children irrespective of their physical age to charge it all up with no capacity or thought of how they were going to pay, and then we went even further and gilded all the colleges on top of it.

  • Attempt to continue to ignore 100+ year old federal anti-trust law in the medical industry which was confirmed to apply at the USSC twice in the late 70s and 80s.  While I generally find "Zero" to be just that the facts are that when you're right, you're right and in this article they're right.  That article clearly documents a wild-eyed repetition of the exact conduct that wound up at the USSC with Royal Drug and which the drug and insurance companies LOST, which should have instantly led to 10 years in federal prison for every single pharma, drug store and insurance company executive involved at the time and for the last 40 years since.  This is not a question of "to be litigated" it was decided FORTY YEARS AGO and is a FELONY.  If you think its just there in the medical system rather than everywhere from your "loved" doctor on to every hospital in the land you're dead wrong and since you won't do a damn thing about it you will soon be just plain dead as it will be unavailable when you can't pay for it and neither can anyone else, including the government with their cost-shifting schemes.

The PPI data makes clear that all the screamers about "inflation is coming down and it will be ok" are full of crap.  They're full of crap because exactly zero of the drivers, which are the above facts and more that all tie into the same thing ("there's a free lunch right over here!") are false.

The other alternative is to:

  • Declare an invasion and post the military and State Guards on the border with orders to stop it by whatever means are necessary.  Peacefully demanding said persons immediately cease and return before crossing into the US if you can, by deadly force if you must.  In addition all of the DACA folks (which has just again been declared illegal) and every other illegal immigrant must immediately leave and any employer, landlord or other person employing, renting to or otherwise harboring, aiding and abetting an illegal alien must be indicted, imprisoned and the instrumentality of their illegal aid forfeited.  "Muh that's unfair" cries notwithstanding this has to be done.  This will immediately restore budgetary capacity within states and cities and has to happen right here, right now.

  • The budget must be balanced.  The biggest element of this problem lies in CMS and all collusive practices must be forced out by jailing the guilty parties, no matter who they are.  The purpose of a Congress and specifically in the House is to determine as representatives of the people what to fund and with what to fund it.  If you can't fund it now you can't have it, period, end of conversation.  The fruits of productivity increases belong to the people as a whole, not to a few mavens in Congress who manage to amass tens of millions of dollars over a career while making $170,000 salaries -- quite-obviously they are gaming it and stealing the money, whether in the stock market or otherwise.

  • The housing market must be left alone.  Prices will crash.  Demand will cool as we get rid of all the people who have no right to be here.  Remove five percent of the population and suddenly apartments and similar will become more reasonable, which takes pressure off.  Prices decrease and suddenly people can afford to buy again.  No, rates must not be manipulated lower again under any circumstances; today they actually stand at historically-reasonable levels in a 2% inflation economy.  Borrowing money for three decades should cost about three to five percent more than the rate of actual inflation.  By this standard rates are still too low but as we get rid of the deficit spending they will come into line with reason staying right where they are.  Yes, many people will wind up bankrupt.  That's ok; the purpose of bankruptcy is to promote clearing of markets and it will function exactly as it always has to do precisely that.

  • College lending must be ejected from the Federal Government, returned to entirely-private except for perhaps Pell and Stafford, and dischargeable in bankruptcy.  The price of college will crash.  So be it.  Today the Internet makes college a dubious proposition in the first place other than for personal interaction.  Thus they should have to provide something better than what you can find in a web search so let's see it, colleges!  If you can't then you go broke.  That's how it should be.

  • The entire medical system must be de-monopolized and de-colluded and those who refuse imprisoned across the board.  I've written much on this through the years -- here is the way to do it.  Costs will come down by 80% or more if we do this.  At the same time we must make it illegal for pharmaceutical firms to grade their own homework when it comes to drugs; the data at this point is clear and convincing that a huge percentage of the drugs are outright frauds in that their claimed results are not reproduceable.  The latest is the furor over OTC decongestants which, it is alleged, are worthless despite being peddled to all and sundry for years.

None of that will be easy, of course.  Nor will be the tax structure changes and spending cuts necessary to bring the budget into balance.  But the choice is stark: We can either do all of it or our society and economic system will collapse.  A Ponzi scheme always eventually collapses because it is exponential and yet the number of people and resources of a given place are finite -- always.


This is an exponential graph.  It is not my data; it is official government data from the US Treasury.

If we do not stop this here and now the nation will be economically and you personally, along with your children, destroyed.

No, you will not manage to evade it while your neighbor gets screwed.  You will also get screwed.

Attempting to game this as we have in the past by, for example, letting in millions of unskilled, low-wage workers who then cost more than they produce in an attempt to "drive down" compensation not only won't work it has and will make the problem worse.  Ditto suppressing interest rates for house purchases, allowing the taking of unlimited loans without a care in the world whether the job someone gets as a result of having a degree will cover the cost, allowing medical and pharmaceutical firms to price-fix through collusion that has been illegal for more than a hundred years and more.  Permitting offshoring by putting environmental pollution "over there" and then behaving it doesn't exist, along with enabling literal and functional slavery in said nations must end right now with any firm that does that being subjected to tariffs sufficiently high to render that behavior uneconomic.

We have played this game for the last two decades and I've been reporting on it since 2007.

We either stop it now by whatever means we must use to force the government to do so or this nation will collapse -- including those who think they are "rich and powerful", both within and beyond the government today.

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2019-07-27 07:00 by Karl Denninger
in Macro Factors , 429 references
[Comments enabled]  

This garbage is just flat-out ridiculous:

I earn my living investing other people’s money in the stock market. I am terrified contemplating how I am going to save my clients’ money, as well as my own, if a Democrat is elected president. The policies that the Democrats are advocating will destroy the American economy, not just the stock market, but the whole US economy. My first instinct will be to raise cash ahead of the stock market crash, but even that is only a temporary safe harbor.

The Green New Deal, renewed regulations, Medicare for All, free college,  as well as the 70-90% tax rates proposed by Democrats, will tank the stock market and US economic growth, leading to higher unemployment and reduced wage gains. All these programs require higher taxes and not just the soak the rich fantasy of the 70-90% rates. Most of the Democratic candidates have pledged to roll back the 2017 Republican tax cuts that fueled the renewal of economic growth in the US.

All of this is true.

But it's irrelevant.

As I've pointed out for more than a decade by 2024 CMS -- that's Medicare and Medicaid -- are incapable of the shenanigans that they use to suppress their budgetary deficit impact.  This is not rocket science, it's arithmetic, exactly as is the so-called "doom dates" on Social Security.

But Social Security's "doom dates" are in fact rather minor.  Being able to pay 80% of a promised benefit (that is, you're running a ~20% fiscal deficit which is consuming assets) is sort of ugly, but that's fixable.  Nobody's going to like a 20% tax increase on FICA (7.65% of wages up to the cap, plus another half you don't see) but raising the cap, increasing that tax by 20% or some combination that gets to the same place resolves the problem.

That's not catastrophic.  Nor, for most people, is a 20% reduction in payments, although the howling (and election losses) that result from the latter guarantees that won't be the outcome.  Those tax changes will and can be made and will not result in a collapse of the economy.

However, CMS is not running a 20% fiscal deficit; in their case roughly one dollar in five is covered, not four dollars in five!  When they run out of that stoked-back powder there are two choices, and only two choices:

1. Essentially default in its entirety on the promises made to Medicare recipients, both current and forward, forever.  This will simply cost-shift basically all of that onto Medicaid, particularly with regard to nursing home care once you bankrupt the vast majority of Medicare (retired) people, which will happen almost instantly.


2. Congress changes the law so as to permit CMS to run without backing, that is, the entirety of their operating deficit shows up on the federal budget as a fiscal deficit.

Social Security and Medicare are currently prohibited by law from doing #2.  Congress will have no choice but to permit #2 for at least Medicare, and since utterly nobody in the political or news space de-aggregates these two programs when talking about "fiscal cliffs" even though they have radically different exposures and funding problems the pressure to do it for both in the same bill will be overwhelming.

Not that it really matters; #2 will roughly double the federal deficit on an essentially immediate and permanent forward basis.

The "big lie" is this:

Whatever you think of President Trump, you know by his record that he will put America first and that his policies have created a robust economy. Unless you want to see the US economy and your standard of life destroyed, there is no alternative to voting for President Trump.

No, he has not.

The GDP data is here.

It shows a 4% gross GDP advance over the last 12 months (to Q2/2019.)

Debt to the penny shows a 3.91% fiscal deficit as percentage of GDP over the same period of time.

In other words there is no "robust economy" at all; it's a lie.

Actual GDP expansion in real terms over the last 12 months is 0.09%!

Statistically-speaking that's zero.

These are not my numbers and not my assertions; they're the government's figures and they're widely-regarded as facts.  Trump's most-recent "budget deal", which he is advocating for, has passed the House and will almost-certainly pass the Senate and be signed into law will remove all fiscal rectitude until the middle of 2021 by suspending the debt ceiling entirely.

Again, I remind you, by 2024 on current trajectories that roughly trillion dollar deficit ($828 billion on a rolling 12 month basis at present, and accelerating) will permanently double.

Yes, GDP will go up, since every dollar of that deficit will be immediately spent.  That's how borrowing works; you borrow money and you spend it, and as soon as you spend it GDP increases.  That's basic math and economics.

However, diluting the currency as a means of "goosing" GDP doesn't actually advance anything in terms of actual economic output.  Worse, productivity, if you believe the BLS, is "advancing" at 3.4% annually as of the last read.  This is, paradoxically, very negative in light of the fiscal deficit because "doing more with less", which is the definition of productivity, means that GDP should be running at least at that level on a fiscally-adjusted basis!

In other words if you include productivity, and for honest numbers you have to, the US is currently in a deep recession as it is in fact contracting real output on a roughly 3.3% annual rate.

How is this possible given "full employment" and the stock market soaring?

It's not hard to figure out; it's happening the same way you're "just fine" if you make $100,000 a year but continually add another $4,000 a year to your credit card balances.  That $4,000 is quite a lift in your standard of living.  It allows your family of four "another" week-long cruise per year, for example, or a very nice trip to Disney, or, for that matter, more than half of the monthly payments on a brand new $50,000 "loaded" pickup truck or Lexus.  Note that if every family did this GDP would increase at that same 4% since you're all spending 4% more than you make and the gross output will thus lift by that same 4%.  The (obvious, to anyone with more than two firing neurons in their brain) problem is that you're not really gaining any prosperity at all; in fact you're going backwards as you're accumulating an obligation that at least has an interest expense and at least in theory eventually must be paid off!

This illusion of "prosperity" can continue for a very long time -- so long as your credit card company doesn't call the loan, or even just shut off the spigot and deny any more charges. But even if just the latter happens not only does that $4,000 a year of "spending" disappear the interest payments do not disappear, and since you can't afford to pay down any of the principle those interest costs go on forevermore into the future.

Again -- as things stand right now we're consuming our capital base at a roughly 3% annual rate.  That depletion rate is set to double within the next five years.

I do not know when the markets will wrap their arms around this just like I don't know when you as a family would if you were running up your credit card on those Disney vacations.  But I do know that the day when it happens will come.  Not might, not could, will.

The willful and intentional denial of this fact by you, Greenwald, along with the others drum-beating for the flying-hair monster currently in office will simply make it worse when it does happen.  After all a market crash from DOW 27,000 to DOW 5,000 is very, very bad.  But one from DOW 35,000 to 5,000 is demonstrably worse because more and more people will believe that the so-called "value" in those assets is not only real but theirs to consume over the coming years when in fact it is not.  How many of those people have a half-million dollar "retirement fund" that is, in fact, really a $50,000 one?

What really galls me, however, is so-called "money managers" like the cited one in this quoted article, who believe that (1) this "prosperity" is real despite the data saying its not being literally in their face, (2) Trump is responsible for it and (3) voting for Democrats will be a disaster while not doing so will continue the "prosperity."

The root problem is that there is no prosperity in the first place; it's a chimera and fraud writ large and has been the case and policy of both parties since approximately 2000, when the accumulation of federal debt crossed the zero boundary and began resulting in negative contribution to GDP.

This is an exponential series.  Like all exponential series the negative impact starts slowly and thus the "belly" in the curve from the two lines on the chart for a while expands.  Yes, the top-line (debt) is accelerating but the imposed cost starts at a lower level and thus there's more "gap" between the two curves for a while.

But arithmetic tells us that exponents always behave exactly the same way.  That the appearing-safe "belly" will disappear, the gap will close and when it does you have a catastrophe because you can't cover the expense.  There is nothing you can do about it other than to halt the excessive spending and pay down the outstanding balance, but this requires not just halting the excessive spending (that is, cutting it to income levels) but going even further in order to pay off some of the outstanding balance.

At present the Federal Government is spending approximately 25% more than it takes in from all taxes combined.  To halt the detonation the spending cuts must therefore be more than 25% in total, now and forevermore into the future.  Everyone in DC has a wipe-out, toddler-style screamfest if you propose not spending more every single year yet the corrective action required is for one quarter of all money spent today be whacked off the budget.  That's how far down the rabbit hole we've gone, all without a single whimper of revolt or refusal to consent by the public at-large.

The mantra for the last 30+ years is that we're "leaving this mess to our kids and grand-kids", implying that we're saddling those who either cannot yet vote or worse, aren't yet born.  That was true 30 years ago,  It was probably true 20 years ago, as the generation just being born then would become adults about...... now.

But today it's no longer true.  We're not leaving anything to anyone.  The problem is here, it's ours, and we either stop it now or it will blow up in our faces.  Five years is a very short period of time to make fiscal adjustments and allow the economy to adjust and come back into balance.  Trying to eke out another 10, 20, or even 50% in stock prices over the next five years is not only unwise it's literally suicidal on a national basis and those advocating for same deserve to be held to account when, not if, their continued drum-beating for a fiscally, economically, politically, morally and ethically bankrupt position results in mortality.  One can only hope it's their progeny, spouses and then theirs personally, in that order first.  Sadly while I can hope and pray for them to be first it will not be only them no matter who goes first; the count of ordinary people who will be utterly destroyed and likely die is going to reach all the way from top to bottom with those at the bottom bearing the greatest percentage of losses.

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2018-07-05 07:00 by Karl Denninger
in Macro Factors , 302 references
[Comments enabled]  

This man is flat-out nuts.

When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.

Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of US imports from China consist of the offshored production of US corporations. Offshoring is a substantial benefit to US corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many—the former American employees who formerly had a middle class income and expectations for their children.

He goes on to argue that it's not China's fault -- it is the fault of our corporations, and thus we have to deal with "our" corporations.

Uh huh.

A business exists to make a profit.

Laws define what is legitimate to do in the pursuit of said profit, and what is not.

Millions of Americans lost their jobs because the law allowed their jobs to be offshored to literal slave-labor encampments without consequence.

And it is not just China.  In fact, China is just one of many offenders.

The results are plain. In Kuala Lumpur cranes stretch outward among the gleaming towers in a perpetual construction boom powered by foreign investment. The streets are spotless and well policed, the water is clean, and the politics are relatively stable. Consumers around the world benefit from products like mobile devices, circuit boards, and LED screens.

At the heart of this economic success are migrant workers. From Bangladesh, Nepal, the Philippines, Indonesia, and India, they arrive at Kuala Lumpur International Airport by the scoreful, papers in hand, hoping for a better life. Estimates of the number of foreign workers in Malaysia vary widely, from the government’s count of almost 1.8 million to perhaps twice as many, which would amount to a quarter of the country’s workforce. Migrant-worker advocates estimate one-third of those workers are undocumented.

Malaysia allows and prospers through what amounts to slave labor; in other words, modern-day human trafficking to obtain labor for pennies an hour.

This is nothing new; in fact it's as old as people.  Mexico was once one of the worst in this regard; they didn't give a crap about the health of their slaves or even their longevity; they had access to so many of them that there was no economic incentive to even feed their slaves.  In other words it was cheaper to buy a new slave than feed the one you have.  America's slavery, for all its warts, didn't devolve into that but it wasn't from the "caring" of the slave-owners -- it came from the economics.

Has it really changed?  Nope, nor will it ever except where the law forces it to.

This is why in my book Leverage I pointed out that the only way to deal with this crap and stop it is to apply Wage and Environmental parity tariffs without exception and to ensconce those in law for any firm that wants to do business in the United States, without exception.

PCR says this is the fault of the Fed.  Of course he does -- he doesn't want to deal with the fact that he, personally egged on the offshoring and "free trade" bullshit, never mind his time in advocacy with the Hoover Institution, Georgetown, George Mason University, an associate editor for the Wall Street Journal (which has an unabashed record of promoting so-called "free trade") and, of course, Reagan's "supply side" economics which were little more than a sop to offshoring and exploitation of slavery.  Oh, and let's not forget his advisory role to J.P. Morgan!

It's not like the big banks had anything to do with this, right? smiley

Reagan had the distinction of running enormous deficits during his Presidency, which inflated GDP.  Everyone cheers for GDP increases but nobody in the media, nor Roberts himself, points out that mathematically GDP will always increase by the exact amount all branches of government combined spend in deficit, whether they allegedly issue "bonds" to "fund" that or not.

Nobody issues bonds or takes down a deficit for money they do not immediately use.  If your local district issues a $20 million bond for a school improvement it immediately spends the $20 million.  If they taxed the money from you first the net GDP impact would be zero -- you forfeit the $20 million to the school (which means you don't spend it) and then the school spends it.  $20 million minus $20 million is zero.

But if they can spend it first then they take nothing from you initially and GDP goes up by $20 million.

The problem is that theoretically they must take the $20 million later to pay off the bond but history says they never do. Instead the bond is rolled over and only the interest is paid, so the $20 million appears to be "free" in economic terms and thus GDP continues to go up when they issue the next one too.

It's not true in fact and what's worse is that the "extra money" flying around makes the price of everything go up.  Now if there was no turd-world slave labor there would be a check and balance on this that would come in the form of rapidly-rising wage demands (when you get to the point of being unable to feed yourself why go to work?) and that cuts off the game.

To prevent a replay of this after it happened during Nixon's administration (and interest rates were forced higher in response) PCR and the rest of the "free market" screamers passed law and policy to make it both legal and trivially easy to find a source of slaves to replace those pesky people in America who would otherwise demand more money to keep making both cars and computers.  They are also the same people who insist that illegal Mexicans be allowed to flood the nation to pick oranges, strawberries and roof houses.

It's not that Americans can't do those jobs it's that you can't ask Americans to do so them for $3/hour and expect them to be able to survive.  The price of a house or strawberry package would skyrocket immediately and cut off the unbacked credit issuance.

In other words it's all fraud and PCR knows it.

But this is what passes for "economic wisdom" these days, never mind "reporting."

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