The Most Splendid Housing Bubbles in America: Nov. Update

Author: Wolf Richter

Date: Nov 24, 2020

A pandemic of house price inflation.

House prices jumped 7.0% across the US, according to the Case-Shiller Home Price Index released today. Other indices have indicated similar price surges. House prices are going nuts despite a terrible economy. They’re being fired up by low interest rates, $3 trillion in liquidity that the Fed threw at the markets, fear of inflation that drives people into hard assets, work-from-home that causes people to look for a larger place, the urge to-buy-now before putting the current home on the market, and a shift from rental apartments and condos in high-rise buildings to single-family houses. And condos, as we’ll see in a moment, are not universally hot.

Los Angeles House Prices:
House prices in the Los Angeles metro in September jumped by 1.3% from August and by 7.7% from September last year. They’re now 12.9% above the peak of the totally crazy Housing Bubble 1, have nearly doubled (+93%) since early 2012, and having more than tripled since January 2000 (+209%):

The Case-Shiller index was set at 100 for January 2000 across all 20 cities it covers. Today’s index value for Los Angeles of 309 means that house prices have surged 209% since January 2000. This makes Los Angeles the most splendid housing bubble on this list.

For Los Angeles, the Case-Shiller Index provides sub-indices for condos, and for high-, mid-, and low-tier segments of houses. In the low-tier segment (black line) – where people can least afford price increases – prices shot up 10.2% from September last year, having nearly quadrupled since January 2000 (+280%). During Housing Bubble 1, the low-tier surged the most, and during the Housing Bust, it plunged the most, -56% from peak to trough. High-tier prices (green line) have risen 7.6% year-over-year and are up 186% from January 2000:

The Case-Shiller Home Price Index avoids some of the distortions inherent in median-price and average-price indices because it is based on “sales pairs,” comparing the sales price of a house that sold in the current month to the price of the same house when it sold previously, and it does so going back decades. Today’s release for “September” is a rolling three-month average of closings that were entered into public records in July, August, and September. So that’s the timeframe we’re looking at.

San Diego House Prices:
The Case-Shiller Index for the San Diego metro jumped 1.8% in September from August and was up 9.5% from a year ago:

This is “House-Price Inflation”: Loss of purchasing power of the dollar.
Because the Case-Shiller Index compares the sales price of a house in the current month to the price of the same house when it sold previously, it tracks how many dollars it takes over time to buy the same house. In other words, it measures the purchasing power of the dollar with regards to houses. This makes the Case-Shiller Index a measure of “house-price inflation.” And that’s all this really is – the loss of purchasing power of the dollar with regards to houses.

San Francisco Bay Area:
House prices in the five-county San Francisco Bay Area – the counties of San Francisco, San Mateo (northern part of Silicon Valley), Alameda and Contra Costa (East Bay), and Marin (North Bay) – rose 1% in September from August and 6.0% from a year ago. The index has more than doubled since 2012 and nearly tripled since 2000:

But condo prices in the five-county Bay Area fell for the fourth month in a row and are down 2.3% from a year ago, and are back where they’d first been in March 2018. Condo prices in San Francisco itself have fallen much further amid a historic all-time record condo glut, with the median price down 12.8% year-over-year. But the Case-Shiller Index covers a vast area around the Bay, including those where San Francisco refugees are moving to, and some of them are seeing rising condo prices:

Read the rest of the article here: https://wolfstreet.com/2020/11/24/the-most-splendid-housing-bubbles-in-america-november-update/

While Household Income Falls, Central Bankers Are Pushing for Higher Prices

Date: 11/16/2020

Author: Daniel Lacalle, Phd


Central banks continue to be obsessed with inflation. Current monetary policy is like the behavior of a reckless driver running at two hundred miles per hour, looking at the rearview mirror and thinking, “We have not crashed yet, let’s accelerate.”

Central banks believe that there is no risk in current monetary policy based on two wrong ideas: 1) that there is no inflation, according to them, and 2) that benefits outstrip risks.

The idea that there is no inflation is untrue. There is plenty inflation in the goods and services that consumers really demand and use. Official CPI (consumer price index) is artificially kept low by oil, tourism, and technology, disguising rises in healthcare, rent and housing, education, insurance, and fresh food that are significantly higher than nominal wages and the official CPI indicate. Furthermore, in countries with aggressive taxation of energy, the negative impact on CPI of oil and gas prices is not seen at all in consumers’ real electricity and gas bills.

A recent study by Alberto Cavallo shows how official inflation is not reflecting the changes in consumption patterns and concludes that real inflation is more than double the official level in the covid-19-era average basket and also, according to an article by James Mackintosh in the Wall Street Journal, prices are rising to up to three times the rate of official CPI for things people need in the pandemic, even if the overall inflation number remains subdued. Official statistics assume a basket that comes down due to replicable goods and services that we purchase from time to time. As such, technology, hospitality, and leisure prices fall, but things we acquire on a daily basis and that we cannot simply stop buying are rising much faster than nominal and real wages.

Central banks will often say that these price increases are not due to monetary policy but market forces. However, it is precisely monetary policy that strains market forces by pushing rates lower and money supply higher. Monetary policy makes it harder for the least privileged to live day by day and increasingly difficult for the middle class to save and purchase assets that rise due to expansionary monetary policies, such as houses and bonds.

Inflation may not show up on news headlines, but consumers feel it. The general public has seen a constant increase in the price of education, healthcare, insurance, and utility services in a period where central banks felt obliged to “combat deflation”…a deflationary risk that no consumer has seen, least of all the lower and middle classes.

It is not a coincidence that the European Central Bank constantly worries about low inflation while protests on the rising cost of living spread all around the eurozone. Official inflation measures are simply not reflecting the difficulties and loss of purchasing power of salaries and savings of the middle class.

Therefore inflationary policies do create a double risk. First, a dramatic increase in inequality as the poor are left behind by the asset price increases and wealth effect but feel the rise in core goods and services more than anyone. Second, because it is untrue that salaries will increase alongside inflation. We have seen real wages stagnate due to poor productivity growth and overcapacity while unemployment rates were low, keeping wages significantly below the rise of essential services.

Central banks should also be concerned about the rising dependence of bond and equity markets on the next liquidity injection and rate cut. If I were the chairperson of a central bank I would be truly concerned if markets reacted aggressively on my announcements. It would be a worrying signal of codependence and risk of bubbles. When sovereign states with massive deficits and weakening finances have the lowest bond yields in history it is not a success of the central bank, it is a failure.

Inflation is not a social policy. It disproportionately benefits the first recipient of newly created money, government and asset-heavy sectors, and harms the purchasing power of salaries and savings of the low and middle class. “Expansionary” monetary policy is a massive transfer of wealth from savers to borrowers. Furthermore, these evident negative side effects are not solved by the so-called quantitative easing for the people. A bad monetary policy is not solved by a worse one. Injecting liquidity directly to finance government entitlement programs and spending is the recipe for stagnation and poverty. It is not a coincidence that those that have implemented the recommendations of modern monetary policy wholeheartedly, Argentina, Turkey, Iran, Venezuela, and others, have seen increases in poverty, weaker growth, worse real wages and destruction of the currency.

Believing that prices must rise at any cost because, if not, consumers may postpone their purchasing decisions is generally ridiculous in the vast majority of purchasing decisions. It is blatantly false in a pandemic crisis. The fact that prices are rising in a pandemic crisis is not a success, it is a miserable failure and hurts every consumer who has seen revenues collapse by 10 or 20 percent.

Central banks need to start thinking about the negative consequences of the massive bond bubble they have created and the rising cost of living for the low and middle classes before it is too late. Many will say that it will never happen, but acting on that belief is exactly the same as the example I gave at the beginning of the article: “We haven´t crashed yet, let´s accelerate.” Reckless and dangerous.

Inflation is not a social policy. It is daylight robbery.

What Drives Progress: The State or the Market?

Author: Ethan Yang
Date: November 11, 2020

Publication: American Institute for Economic Research

The famous American author, Mark Twain once said, “History never repeats itself, but it does often rhyme.”

A little over a hundred years ago President Woodrow Wilson kicked off a drastic expansion of government power and scope with the general assumption that the state can scientifically plan society. President Franklin Roosevelt greatly expanded on this idea with more government programs that promised to solve all sorts of societal ills and bring a level of centralized progress that the market couldn’t provide. This sparked caution and critique from those who favored market-based mechanisms advocated by economists such as Ludwig Von Mises.

Those like AIER argued that the market was far superior to the state in organizing society. This is the story of humanity, a struggle between the individual and the state. Those who believe in statism and those who believe in liberty.

Some thought that the free marketeers won the intellectual argument against the Keynesian statists in the 1970s. This is when stagflation completely upended the assumption that inflation and unemployment are always inversely related. It turned out that simply using expansionary monetary policy to drive economic growth was not as good of an idea as people thought. Post World War Two, Keynesian and big-state thinkers more generally braced for economic turmoil as spending dropped and people returned from war. The exact opposite happened as we learned again that the state does not drive economic growth. In the latter half of the 20th century, sweeping market reforms brought prosperity to countries all around the world. Another blow to the idea of state-run industry.

In 2013 Dr. Mariana Mazzucato, a leading economist of the Keynesian persuasion, published The Entrepreneurial State, which makes the case that the public sector can do far more than it is currently doing. That the private sector necessarily needs generous guidance and intervention from the state and in many cases is equal if not superior to the market in generating efficient and innovative services to society.

Well, here we go again.


Mazzucato and her allies posit that society can be so much better if we ditched market-based principles and delegated more responsibility to the state. Think people like Senator Elizabeth Warren.

This is why it is so necessary that economic heavyweights Dr. Deirdre McCloskey and Dr. Alberto Mingardi teamed up to write The Myth of the Entrepreneurial State. In a perfect world, one should read Mazzucato’s work as well, but doing so is not necessary to understand this book. The book can surely stand its own as the debate between the market and the state is a timeless conversation. The book also serves as an outstanding work of economic history and elaborates on many relevant economic topics, making it well worth anyone’s time, not just those closely following this debate.

The Idea of the Entrepreneurial State
The authors quote Mazzucato when they note that she remarked,

“Mainstream policy conceptions and prescriptions” are “normative postulations for a permanent state planning for more markets, mainly organizing ‘deregulation cum privatization’ rather than deliberate sets of conditional recommendations based on pondering alternatives and paths.”

Essentially this suggests that mainstream economic thought is dominated by ideas put forth by those like Milton Friedman who advocate for more privatization and deregulation to create growth. Mazzucato believes that this is unpredictable and suboptimal. Rather we should allow experts to ponder better alternatives with a scientific level of precision. Mazzucato likes to reference government programs like DARPA and The Manhattan Project as examples that the government can be very innovative.

This is an odd assertion, as I would agree that many economists hold the belief that privatization and markets are good. However, McCloskey and Mingardi point out that

“In the past century, government expenditure as a percentage of GDP drifted up towards 50 percent, compared with its pre-Keynesian level of 10 percent”… “ Democratically elected politicians, and behind them their constituents in the voting public were finally convinced that budget balance carried little or no normative weight.”

Contrary to Mazzucato’s point, there is no widespread consensus about the wonders of privatization amongst policymakers, just sloppy never-ending spending, and expansion.

This is how government works, especially democracies. It’s sloppy, it’s imprudent, it’s cumbersome and utterly desensitized to important market forces. If you empower the state to take on more and more planning of society, this problem will only exacerbate.

This is why the traditional economic consensus is that the government should stick to prescribed collective action problems and the private sector is where most activity should be conducted.

The authors are less shy about explaining their issue with Mazzucato’s grand idea when they write,

Mazzucato, a loyal daughter of the left, is suspicious of private gain, of the sort you pursue when you are shopping, say, and is therefore suspicious of people doing things for a private reward. She wants the State, advised by herself, to decide for you.

In essence that is what the idea of the entrepreneurial state ultimately boils down to. A rationalization of leftist political economy that has politicians and university professors jumping for joy. A very mild form of central planning that says that great things are possible as long as I am in charge.

What Drives Innovation
One of the main premises of those who believe in an entrepreneurial state is that public investment drives innovation. Mazzucato contends that the government should exert a sort of directionality over private businesses to drive them towards some optimal point determined by experts.

However, this is a false view of how innovation happens. Innovation comes from the bottom up, not from the top down. Free people acting in spontaneous and self-interested ways create the innovative products of tomorrow. Private firms jockeying for supremacy in handheld communication gave us the genius of the iPhone. Tesla produces some of the most advanced electric cars in the world available for mass consumption. Tesla CEO Elon Musk is the antithesis of the pondering bureaucrats that Mazzucato believes drive innovation. A man who offers four car models named S, 3, X, Y, sells flame throwers, privatized the space race, and now just launched a line of tequila.

If anything Elon Musk’s personality might be the ideal representation of how innovation happens. Not by deliberate planning by experts but by the rambunctious and oftentimes chaotic enterprise of free individuals.

Mazzucato and others like her contend that the state drives innovation. The authors disagree and state that

“The spring, we say, was the liberal idea and its emancipation of human creativity.”

As statists lament over the alleged “normative postulation” regarding privatization, McCloskey and Mingardi feel exactly the opposite. Getting the state out of the way of free individuals is the driving force behind innovation.

Does Government Investment Contribute to Innovation?
One of the convincing arguments made by Mazzucato and others like her is that the advanced military research agency known as DARPA invented things like the internet. Therefore, the state may be capable of impressive feats of innovation. If we invested more, then we would get better results.

The authors offer a rebuttal that can be summarized as “important if true.” They write

“The question is whether the American government envisioned anything like the internet. The answer is obvious: of course it didn’t. There was no “mission-oriented directionality.” The investments by the military look like Christopher Columbus’ voyages: the entrepreneurial State discovered the West Indies having left for the East Indies.”

Furthermore,

“In the 1960s the Air Force considered how a decentralized communications grid distinct from the traditional telephone might operate. But the Department of Defense then terminated the research and took no action.”

The authors also go on to point out that one of the leading developers of ARPANET, the technical foundation for the modern internet, observed that

“DARPA “would never have funded a computer network to facilitate email” because the telephone already served person-to-person communications perfectly.”

This shows that government contribution to creating things like the internet was not only unintentional, it may have been detrimental. Innovation is a chaotic endeavor that requires testing in the marketplace rather than the approval of experts. If invention and progress rested on the opinions of whether a room full of PhD’s thought it would be productive, we might not have made it past the horse-drawn plow.

One famous example is the advent of airborne flight, which government officials and many others understandably believed after a failed test that air travel was not obtainable. Looking back, these comments seem comedic but if we allow the state and its army of experts to impose “directionality,” innovation would grind to a halt.

In fact, in 1903 the New York Times predicted that flight was approximately 1-10 million years away. Then just a couple of months later two bicycle mechanics, Wilbur and Orville Wright made the first functional airplane in their garage, proceeding to change the world forever.

Innovation happens in the absence of state direction. It’s not innovative if it was completely planned.

The authors go even further to point out that oftentimes innovation takes place to outmaneuver the state as regulations bog down progress in various industries. This can partially explain things like the emergence of private equity over public equity in the world of finance. One of the key benefits of private equity is not having to abide by the cumbersome regulations that govern public financial markets.

Key Takeaways
This debate between whether or not the state can be a competent and worthy driver of innovation is a necessary one. Although the state continues to grow regardless of who wins this intellectual argument, it was thought that proponents of limited government had won this discussion in the late 20th century when the world experienced a sweeping wave of liberalization.

Today we find ourselves at a crossroads, with much of the Western world embracing or starting to consider a view of government that sees it as much more than just a steward of our rights. They see the state as a force of positive and competent change in a capacity that McCloskey and Mingardi believe is only possible through the market. That a more powerful and unrestricted government can reliably be a steward of society.

The idea of an entrepreneurial state as proposed by Mazzucato is a romantic one. It’s an idea that people can come together and through sheer will can make innovation happen. That some very smart people with fancy degrees and prestigious titles can steer society to an optimal location. The only problem with that is just about everything.

Mises Explains Why Socialism Fails

Author: Fabrizio Ferrari


One century ago, Mises began the socialist calculation debate, publishing his essay Economic Calculation in the Socialist Commonwealth (1920) and his subsequent treatise Socialism: An Economic and Sociological Analysis (1922). Later, Mises included his antisocialist arguments in Human Action 1949 , his magnum opus, especially in Sections III (about economic calculation) and V (about the economic impossibility of socialism).

Mises question on socialism is straightforward and simple: Can a socialist economy allocate resources efficiently as the free market does (cf. Mises [1949] 1999, p. 691)? In order to answer, we need to understand (1) how does a free market economy work, (2) the importance of economic calculation and entrepreneurship, and (3) the reason why socialism is intrinsically incompatible with the very idea of economy.

How does a free market economy work? It’s a system of human interactions wherein human beings make their choices of consumption and production—efficiently allocating different privately owned means (scarce resources with alternative uses) to satisfy different ends (consumptive wants). Since human ends (consumptive wants and desires) are subjectively valued, the means conducive to their satisfaction (production goods) are subjectively valued as well—according with the ends they satisfy, i.e., the consumptive goods and services they produce. Of course, a free market economy features human beings freely exchanging both consumptive and productive goods and services. Such exchanges occur at freely agreed ratios (prices), which express the essence of economy: satisfy (directly—via consumption—or indirectly—via production) chosen ends while giving up other less preferred ones.

It’s therefore clear that the concept of economy is linked with the idea of exchange—thus economics, the science concerned with economy, is more aptly labeled catallactics, i.e., the science of exchanges, from the Greek verb katallassein, meaning “to exchange” (cf. Mises [1920] 1990, pp. 15–16). But exchange requires previous estimation and calculation of pros and cons, assessing whether what we give up is actually worth less than what we gain (cf. Mises, [1949] 1999, p. 230).

In a free market economy, productive choices are governed by the profit and loss mechanism, whereby sovereign consumers signal—through their consumptive choices—which entrepreneurs they are willing to “reward” and which ones they are willing to “punish” (cf. Mises, [1949] 1999, pp. 295–97). When entrepreneurs supply consumers with desired consumptive goods (ends) at affordable prices (i.e., when they employ scarce productive means effectively and efficiently), they are rewarded by consumers with entrepreneurial profits—thus increasing entrepreneurs’ net worth, their capital (cf. Mises [1949] 1999, p. 231). Otherwise, consumers “punish” entrepreneurs through losses—decreasing entrepreneurs’ net worth, their capital, and turning their investments into malinvestments.

Thus, we understand the pivotal importance of entrepreneurship within a free market economy. Entrepreneurs, indeed, are the transmission belt between consumers’ wants (consumptive goods and services) and the means conducive to their satisfaction (production goods). Hence, entrepreneurs are the central cog of the economic choice mechanism. They (1) forecast, or speculate, which wants consumers are eager to satisfy, (2) perform the economic calculation establishing whether such wants can be efficiently satisfied, and (3) employ their own savings—skin in the game—while investing and buying production goods.

It’s hence evident that entrepreneurs are both speculators (they envisage future possible scenarios) and savers-capitalists (they save and accumulate the capital they later invest).

But speculation requires calculating tools—the price system. How does it emerge? Prices can emerge only while exchanging, buying, selling, purchasing, etc. (cf. Mises [1949] 1999, p. 202). Prices are, indeed, the ultimate expression of economic action—gaining something (say, a T-shirt) while foregoing something else in exchange (say, twenty dollars). Absent exchange, prices cannot originate: they would be not only impossible, but even inconceivable. Prices are, in fact, ratios (or tradeoffs) at which given exchanges are performed—if exchanges are abolished, prices will follow suit. Thus, were exchanges for particular goods (say, production goods) to be abolished, these same goods would cease to feature market prices.

Saving and capital accumulation , on the other hand, require private ownership to be in place: it’s indeed thanks to private ownership over their own capital—i.e., production goods—that entrepreneurs enjoy profits and suffer losses (cf. Mises [1949] 1999, pp. 254, 302–04, 704–05; and Mises [1920] 1999, p. 37), thus allowing the profit and loss mechanism to function properly and to steer productive activities on consumers’ behalf.

Here comes socialism: collectivizing production goods’ ownership, socialism abolishes entrepreneurship via two logical steps. First, entrepreneurs are “directly” abolished as capitalists, since they are legally forbidden from privately own and accumulate capital—i.e., production goods. Second, being all production goods now owned collectively, they can no longer be exchanged, bought, sold, etc.; hence, prices cannot emerge any more for these goods, and entrepreneurs can no longer compute costs of production while choosing what to produce and how to produce it—thus, entrepreneurs are “indirectly” abolished as speculators.

What about the fashionable critique of socialism proffered by Hayek and Robbins, i.e., that socialism is impossible because the central planner would lack (1) the knowledge and/or (2) the intelligence necessary to plan production? Hayek and Robbins, indeed, ground their critique of socialism on the central planner’s incapability of (1) obtaining all the relevant information necessary to plan production and/or (2) computing and calculating the optimal level of production (cf. Salerno 1990, pp. 57–64).

But central planner’s knowledge and intelligence are not the relevant argument for Mises. By means of abolition of entrepreneurs (the pivots of free market production choices), socialism itself gets incompatible with the very idea of economy—economize available means to attain desired ends.

If, indeed, production goods are collectively owned by a single entity (government, State, folk, etc.), how would it be possible to trade, to exchange, to sell and purchase them? It would be impossible—hence, there wouldn’t exist a market for them. But, without a market, how could prices emerge? Of course, they couldn’t (cf. Mises, [1920] 1990, p. 4). But again, without prices for production goods, how to compute costs of production? And profits and losses? Of course, it would be impossible as well (cf. Mises, [1949] 1999, p. 701). And, without profits and losses, a socialist economy has no tool conducive to efficient allocations of production goods.

Thus, without knowing whether revenues are higher or lower than costs (because costs cannot be computed), how would the socialist central planner know whether production is being carried out according to consumers’ desires? Of course, that would be impossible to know (cf. Mises, [1949] 1999, p. 209). A socialist central planner, in fact, even knowing which consumptive goods are desired most, would know neither which ones could be profitably produced, nor how to efficiently produce them (cf. Mises, [1920] 1990, p. 21). Absent market prices for production goods, no profit nor loss can be computed—hence, producers have no “compass” guiding them through production choices. Economic calculation is impossible for goods with no market (cf. Mises, [1949] 1999, pp. 215, 230).

So, why does socialism fail? It fails because it’s the very negation of the idea of economy—economizing man. Abolishing private ownership for production goods, socialism abolishes the market for them and makes it impossible for market prices to emerge and for costs of production to be computed—thus impairing the profit and loss mechanism. Socialism does not necessarily fail, as Hayek and Robbins thought, because the central planner lacks the knowledge and/or the intelligence needed to plan production; it fails, instead, because it abolishes entrepreneurship and economic calculation.

Clothing giant Next begins to reverse its fortunes as sales recover after heavy lock-down losses

Some points and questions to consider while reading this article:

  1. The author makes the claim that the reversal of fortunes, is up by 4% from last year, is due to helped by cooler weather and fewer people going on holiday abroad.
  2. The author does make the point about how the revenues have increased by 4%, over the last seven weeks, and she also cites sales, pre-tax profitability(£300m), and etc. She does not provide context specifically how those things compare to last year. Is that comparison for a similar seven-week period from 2019?
  3. What things did Next implement, during the COVID-19 pandemic that specifically lead to the increase in revenue for the 7 week period? Did they lower prices? Did the seek to provide sales incentives via an online shopping distribution model?
  4. If they are seeking to close some of their retail outlets, and their end of year revenue projections are down, does this 4% increase really represent a growth trend—as we enter cooler weather and the holiday season?

By CAMILLA CANOCCHI FOR THISISMONEY.CO.UK

PUBLISHED: 04:13 EDT, 17 September 2020 | UPDATED: 06:23 EDT, 17 September 2020
Clothing and homeware chain Next has begun to reverse its fortunes after the Covid slump as it upgraded its full-year forecasts for a second time after recent strong trading.

The FTSE 100 retail bellwether said full price sales in the last seven weeks were up 4 per cent compared to last year, helped by cool weather and fewer people going on holiday abroad.

It now expects profit before tax to come in at £300million, up from its previous guidance of £195million given at the end of July. That, however, is less than half what it was expecting before the pandemic struck.
Michael Hewson, chief market analyst at CMC Markets UK, says: ‘When you consider that in January, Next was expecting to see pre-tax profits of £734million for 2020, this is a remarkable turn in fortunes from what the business was facing as recently as a couple of months ago.’
But Simon Wolfson, Next’s chief executive, said the sales performance through the pandemic had been ‘more resilient than we expected’.
‘The scale of our online business (in the UK and overseas), the breadth of our product offer, and the fact that much of our store portfolio is located out of town, have served to mitigate the worst effects of the pandemic on trade,’ he added.
Investors seem to have received well the update, with shares rising 1.7 per cent to £62.77 in morning trading on Thursday. But they remain 12 per cent down so far this year.
Sales of home, children swear, sportswear, lounge and underwear performed better than formalwear and holiday categories.
Emily Salter, retail analyst at GlobalData, said: ‘This ability to switch product focus to different categories is a luxury not afforded to many retailers, and will benefit Next as the new “rule of six” will drastically reduce the demand for occasion wear for the festive period, so Next can switch its product focus to more casual, cozy styles instead.’
Despite the upgraded forecasts, the group still expects sales to fall 12 per cent this year under a better-case scenario, or between 17 per cent and 29 per cent in a worst-case scenario.
In the first half, sales fell 33 per cent, hammered by store closures during lockdown and the group fell made pre-tax losses of £16.5million for the six months to the end of July – compared to profits of £327.4million a year earlier.
On an underlying basis, it saw profits crash 97 per cent to £9million, though it had initially expected to be loss-making.
Next, which has around 500 stores across the country, warned it still expects to close 13 shops this year, down from 14 predicted in March. Next, which has around 500 stores across the country, warned it still expects to close 13 shops this year, down from 14 predicted in March
Its update follows that of Zara’s owner Inditex yesterday, which said a surge in online trade helped it to record a healthy profit during the summer.
Next said it has not seen a deterioration in bad debt rates or any extension in the length of time customers choose to pay down their accounts.
Russ Mould, investment director at AJ Bell, says that despite the crisis, Next is still ‘managing to keep its head above water’.
‘Interestingly it has seen no change in bad debt trends, which one might have expected to shoot up amid growing unemployment,’ he said.
‘Next’s management has always taken a cautious view and is not being complacent, which explains why it is making provisions now for an increase in bad debts just in case.
‘That summarises Next to a tee. Its ability to keep making money through the crisis should be cause for celebration, but Next would never party too hard.’

Analysis of the Myths Regarding Government Debt Pt 1

Anthony Davies, Phd has taken the time to make a video regarding the Myths regarding Government Debt. As promised, I will provide some deeper insight on some of the points that Dr. Davies makes in his video. My insights will not be in order of the listing that he provides in the video, I will simply touch on some of them.

The Printing of More Money

Some individuals will state to solve the multi Trillion dollar debt issue, the solution of prininting more money will suffice. Albiet it may sound reasonable, it will actually make matters worse. The inflationary effects of the expansion of the money supply are well documented, on this blog as well in the video done by Dr. Davies. As prices rise, due to the devaluation of the currency, the illusion of increased tax revenues will occur. Public Policy analysts will remark a record number of tax revenues have flowed into the treasury. Yet, this is misleading. The tax rates will be based upon the PRICES of goods(this also includes the WAGES of labor). The inflationary impact, as stated in the video, impacts both PRICES AND WAGES. The impact of the increase of the money supply creates this effect, along with the depreciation of capital(savings). As an aside, this is why politicians love lower interest rates for monetary policy–this action encourages consumption in the present, and discourages savings for future consumption.

Since the revenues will increase to the treasury, politicians will spend more money, creating a wider short fall(deficit). This deficit will be “balanced” by the sale of Government securities or debt. Once those securities are sold, this action also expands the money supply, creating more inflationary impact on prices and wages, while concomitantly wiping out individual savings. More could be stated about his effect on savings, but that shall wait for another blog entry. In short, the debt will be never balanced by simply “printing more money”.

Raising Taxes

This battle cry is highly popular with politicians and their supporters: ” We can simply raise taxes on the rich, and this will help us balance the budget.” Like many of these proposals, they *sound* reasonable, at first. Once deeper analysis is performed, it is revealed these sort of proposals are meaningless and fallacious. A thought exercise: Suppose your local grocery story raises its prices on your favorite name brand cereal. Let us suppose it raises it by $10. Before the price was $5 for a box of Raisin Brand, now the retail price is $15. Will you continue to purchase this cereal? In most cases, the answer is no. You will seek alternatives to paying $15 for cereal. Yes, I know cereal is not the same as paying taxes, but the underlying human behavioral concept is the same: Price elasticity. Humans will purchase goods relative to their price elasticity–if the price of that good rises too high, actors in the free market will seek other means to satisfy their wants that were normally fulfilled from that particular good. If tax rates are raised up too high, individuals will seek out means to offset the tax risk or avoid paying on the tax increase. This economic phenomenon will occur if taxes are raised: Tax payers will seek alternatives(price elasticity) to paying the higher tax rates. Since this is the case, tax revenues will not increase when tax rates are increased. Historically, this has been proven to be true. When tax rates are lowered, tax revenues are increased. Also, regardless of what the tax rates are, taxes collected typically are around 17% of GDP.

More will be covered on another blog entry…

The US Dollar Collapse Is Greatly Exaggerated

The US Dollar Index has lost 10 percent from its March highs and many press comments have started to speculate about the likely collapse of the US dollar as world reserve currency due to this weakness.

These wild speculations need to be debunked.

The US dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the US Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3 percent in the same period, according to data compiled by Bloomberg.

The speculation about countries abandoning the US dollar as the reserve currency is easily denied. The Bank of International Settlements reports in its June 2020 report that global dollar-denominated debt is at a decade high. In fact, dollar-denominated debt issuances year-to-date from emerging markets have reached a new record.

China’s dollar-denominated debt has risen as well in 2020. Since 2015, it has increased 35 percent while foreign exchange reserves fell 10 percent.

The US Dollar Index (DXY) shows that the United States currency has only really weakened relative to the yen and the euro, and this is based on optimistic expectations of European and Japanese economic recovery. The Federal Reserve’s dovish announcements may be seen as a cause of the dollar decline, but the evidence shows that the European Central Bank (ECB) and the Bank of Japan (BOJ) conduct much more aggressive policies than the US while economic recovery stalls. Recent purchasing manager index (PMI) declines have shown that hopes of a rapid recovery in Europe and Japan are widely exaggerated, and the Daily Activity Index published by Bloomberg confirms it. Furthermore, at the end of August, the balance sheet of the ECB stood at more than 54 percent of the eurozone GDP and the BOJ’s at 123 percent versus the Federal Reserve’s 33 percent.

What we have witnessed between March and August has just been a move back from an overbought exposure to the DXY index due to the severity of the crisis, with investors increasing positions in safe havens in February and March, only to reverse as markets and the economy recovered.

The lesson most governments should learn is that economies do not become more competitive or deliver stronger growth and exports with a weak currency. Emerging markets have shown in the past years how a weak currency does not help, and the eurozone has had a weak euro versus the US dollar for years just as its economy delivered disappointing growth.

The reason why the US dollar’s world reserve currency status is not at risk is simple: there are no contenders. The euro has redenomination risk, and the constant political and economic concerns about the union’s solvency weaken the currency, as historical performance has shown. It tends to strengthen relative to the US dollar when investors place unjustified hopes on the eurozone growth only to weaken afterward, when poor growth adds to an overly aggressive ECB policy, with negative rates and massive money supply growth. The yuan cannot become a world reserve currency if the country maintains capital controls and concerns about legal and investor security remain. The Chinese central bank (PBOC) is also extremely aggressive for a currency that is only used in 4 percent of global transactions according to the Bank of International Settlements.

We are living a period of unprecedented financial repression and monetary expansion. The US Dollar reserve status grows in these periods where countries ignore real demand for their domestic currency and decide to copy the Federal Reserve policies without understanding the global demand for their currency. When the tide turns, most central banks find themselves with poor reserves and lower demand for domestic currency risk, and the position of the US dollar as reserve currency strengthens.

This is not a year of US Dollar weakness or the end of its supremacy as reserve currency, what we are witnessing is a generalized fiat currency debasement through extreme monetary policy. That is the reason why gold and silver continue to rise despite hopes of an economic recovery that seems to be stalling. The US Dollar will likely remain the most demanded fiat currency, but the excessive monetary stimulus will ultimately damage the confidence in most fiat currencies.

Author:
Daniel Lacalle

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

Sound Money Is Key to Defending Our Liberties

By Thorsten Polleit from: Mises Institute

The title of this article epitomizes what the Austrian economist Ludwig von Mises (1881–1973) called the “sound money principle.” As Mises put it:

The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.

And further:

It is impossible to grasp the meaning of the idea of sound money if one does not realise that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.

Mises tells us that sound money is an indispensable line of defense of people’s liberties against the encroachment on the part of the state and that sound money is a kind of money that is not dictated by the state but is chosen by the people in the free marketplace. The world we find ourselves in is a rather different place. Our monies—be it the US dollar, the euro, the Chinese renminbi, the yen, or the Swiss franc—represent fiat currencies, monopolized by the state.

Fiat money is economically and socially destructive—with far-reaching and seriously harmful economic and societal consequences, effects that extend beyond what most people would imagine. Fiat money is inflationary; it benefits a few at the expense of many others; it causes boom-and-bust cycles; it leads to overindebtedness; it corrupts society’s morals; and it paves the way toward the almighty, all-powerful state, toward tyranny.

Central Banking Is Marxist
It is certainly no coincidence that “the state” has been expanding ever since the world adopted an unfettered fiat money regime back in the early 1970s, and that as a result individual liberties and freedoms have been under pressure ever since. The state feeds itself on fiat money. It simply issues new debt, which is then monetized by the its central bank, which is at the heart of the fiat money regime.

Perhaps you will find it surprising that I believe that the concept of central banking is truly a Marxist concept. (I am not saying that central banking is only favored by Marxists. Not at all! There are also many other ideologies which approve of central banking.)

In their Communist Manifesto of 1848, Karl Marx (1818–83) and Friedrich Engels (1820–95) compiled a list of measures necessary to establish communism. Measure number 5 reads as follows:

Centralisation of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

Against this backdrop there should be no doubt that once the state has become the absolute ruler of fiat money, the door is open for it to grow bigger and bigger, eventually turning into the dreaded deep state. And the deep state, as we know well from history, has little regard for individual freedoms and liberties.

Making Money Great Again: Returning to Sound Money
What needs to be done? Well, the challenge at hand is “Making Money Great Again”! This requires, first and foremost, ending the state’s money production monopoly and opening up a free market in money. A free market in money means that people have the freedom to choose the kind of money they wish to use and that people have the freedom to provide their fellow men with alternative goods that may serve them well as money.

As things stand, however, a final solution to the “money problem” has not arrived yet—even considering the emergence of the cryptocurrency space. This is because the financial intermediation problem is still unsolved in the cryptocurrency ecosystem; we will come back to this issue in a moment.

But first let us address the question: How can we get from a state-controlled fiat money regime to a free market in money?

The first strategy is monetary enlightenment—informing the widest possible audience about the evils of fiat money and how it affects their personal lives, families, and communities. This also includes explaining to people that there is a superior and practicable alternative to a fiat money regime, namely a free market in money.

The second strategy is making progress in the field of alternative currencies and payment systems, especially in terms of technological disruptions and their economic profitability. This is the activity space for those among us who are propelled by entrepreneurial spirit.

The Limits of Cryptocurrency
The cryptocurrency community, the bitcoin community in particular, and also precious metals–based payment system providers have been making some headway in this area in recent years, but unfortunately victory has not yet been achieved.

For instance, bitcoin still has some scalability and performance issues. Currently, the bitcoin network settles a peak of around 350,000 transactions worldwide every day, and given its present configuration, it is presumably running at almost full capacity. By comparison, the German fiat money payment system alone processes more than 75 million transactions on average every business day. From the payment processing viewpoint, bitcoin cannot outshine fiat currencies yet.

What is more, a currency in a modern economy must provide for the possibility of financial intermediation (an issue I mentioned earlier). People typically demand payment or storage services for their money, or they want to lend and borrow money—irrespective of the kind of money they actually use. Often peer-to-peer is not enough, a third party is required.

Providing intermediation services outside existing state regulation is difficult. In fact, it would put an upper limit on the financial sophistication of any cryptocurrency. This is a heavy drag on their competitiveness compared to fiat currencies. And if a cryptocurrency comes out into the open space, it will have the state breathing down its neck, drowning it in business-destroying regulations and restrictions. Because the financial intermediation problem is still unsolved, one has reason to remain skeptical that—given the current circumstances—existing cryptocurrencies will succeed in pushing aside the state and replacing its fiat currency just like that.

Precious metals suffer from similar problems. In many countries, the state subjects gold and silver to value-added taxes and/or capital gains taxes. This makes them uncompetitive versus fiat currencies in terms of using them in daily transactions.

The Key to Free Market Money Is Deconstructing the State
In fact, is it possible that a free market in money can ever emerge as long as there is the kind of state we know today? The state is, as most of you probably know, the territorial monopolist of ultimate decision-making with the right to tax its citizens. We can rightfully expect that this kind of state will do its best to crush any competitor to its fiat money and prevent a free market in money from emerging.

So if we want a free market in money, the sobering logical conclusion is this: we need to reform, to deconstruct, the state (as we know it today).

Now the uncomfortable truth is out, because the state is possibly the fiercest adversary you could choose. How can we hope to achieve victory?

Well, there is certainly no magic spell. One possible and straightforward strategy might be appealing to people’s inner self, and that is their right to self-determination.

The right to self-determination is inalienable and it is an indisputable truth. Each and every individual is the owner of his or her body and the owner of goods acquired in nonaggressive ways (without violating the physical integrity of someone else’s property). We cannot dispute these words without causing a logical contradiction.

The right to self-determination implies that the citizens of a state have the right (1) to make it known, by a freely conducted plebiscite, that they no longer wish to be members of the state and (2) to form an independent state or to attach themselves to some other state. In other words: the right to self-determination includes the right of secession, that is, people’s right to break up the big state and to deconstruct it into smaller units.

Smaller political units are less powerful, more peaceful, and free market oriented. They keep taxation low, or may even go without it and become wealthier. Just think of, e.g., Shanghai, Hong Kong, Switzerland, Liechtenstein, or Monaco. This is because small political units must compete for capital and talents with other political units. They must behave themselves nicely. Otherwise, people and capital will leave their territory. Given a great number of small political units, there is a good chance that some of them will allow for, even encourage, a free market in money, setting an example that creates emulators.

Conclusion
It is hard to say which route would be the most effective in “Making Money Great Again.”

Perhaps the cryptocurrency community will somehow succeed in ending the state (as we know it today), leaving a truly free market in money in its place.

In the meantime, however, it certainly would not hurt if we (1) kept educating the wider audience about what good money is and what bad money is and also (2) kept unmasking the state (as we know it today), showing that it is incompatible with and a violation of the inalienable right to self-determination of each and every human being.

In any case, it is of the utmost importance to wrest the money monopoly out of the hands of the state. Otherwise, there is indeed little hope that the free society (or what little is left of it) can survive.

(The complete article, with footnotes, is located here)

10 Myths About Government Debt

Antony Davies, Phd goes through a listing of 10 Myths about Government Debt. For future blog posts, I will attempt to expand on each of these 10 myths. This growing debt is a huge issue, not only for current generations, but for those to come in the future. As mentioned in the video, Dr. Davies does provide a “solution” to handle the Government Debt. It is a must see. Take copious notes.

Cheers,

Robert

Pathological and Parochial Altruism in the Age of Fear

By Lucio Saverio Eastman

When you think of altruism, what readily comes to mind? Charity, giving, love, kindness, and humanitarian progress, right? What if I were to tell you that altruism has a dark, secret pathology that has driven some of the worst, and most horrific acts humanity has experienced historically? It’s a difficult revelation for some, but necessary for what I’m about to discuss. This subject has a direct connection to our current trajectory of policy and reaction to the pandemic.

But first, let’s quickly explore what altruism is and how it influences society.

Altruism–healthy altruism–benefits society in many positive ways and is ingrained in Western philosophy and ethics. Studies have shown there are neurological benefits for people to participate in acts of kindness, love, philanthropy, mutual aid, and charity. One might also argue that it is a selfish act, as these neurological benefits are actually releasing compounds and chemicals into your brain to make you feel good. This is where things begin to go awry.

Addicted to the Good of All
Addiction is a problem most of us understand when talking about drugs. However, people can also become addicted to the biological stimulants produced by neurological signals. Study after study has shown that marketing, media programming, propaganda, gaming, social media, news cycles, and the endless debates that result from the onslaught of sanctimony, bias, and opinion in these mediums can be a source of emotional addiction, as well as somatic and psychological ills plaguing society. Everything has been gamified in order to gain that chemical advantage in perceived competition with self and/or others. Obviously, the line between healthy and unhealthy practice can be extremely thin.

I’ll address how this corresponds with our current world situation, but let’s take a brief look at the prisoner’s dilemma. It goes like this: Even when it seems to be in the best interest of two rational individuals to cooperate, wherein those individuals are presented with a choice between opportunity (defection) and responsibility (cooperation), it’s often difficult to come to a cooperative agreement because each person also benefits unilaterally from opportunity.

However, introducing a pathological altruist into the dilemma can wreak havoc in the cultural dynamics of small, tight-knit communities. Pathological altruists are masters at mustering social loyalty, obedience, and fealty. Their very presence and ability to organize and foster cooperation benefits the collective community even if better opportunities exist for individuals.

Just one maladaptive altruist can wipe out the disruptive advantage of opportunists by manipulating innovators and mavericks into cooperative followers. These highly charismatic individuals can project an almost messianic air, which spreads throughout the entire community. With the exponential increase in technological community and global outreach, this dynamic can grow far beyond the boundaries of one’s immediate circle of influence practically uninhibited. For more on this, see “Altruism Gone Mad” by Joachim I. Krueger

Unintended Consequences
Let us take a look at an example that most of you will recognize: Poverty eradication through entertainment industry star power and influence. Musicians (Bob Geldof of the Boomtown Rats and Bono of U2 as well as members of Glee for example) can be highly influential altruists with good intentions that might knowingly or innocently shade into pathology.

Magatte Wade, a Senegalese entrepreneur interviewed in the eye-opening and educational “Poverty, Inc.” says, regarding the altruistic attempts of musicians in both 1984 (Band-Aid) and 2011 (Glee),

“The Christmas song raised awareness and it was in response to a particular crisis. I understand that. But it also perpetuates a false image of Africa as barren and a sentimental image of Africans as helpless and dependent. And here we are a generation later and the same song, the same images are back with the same lyrics, the same silliness of Africa as not having any rain, not having any river, and us Africans not knowing that it’s Christmastime.”

Magatte goes on to say, “It does more harm than good.” That statement is the base definition of pathological altruism from Barbara A. Oakley, editor of “Pathological Altruism,

“Pathological altruism can be conceived as behavior in which attempts to promote the welfare of another, or others, results instead in harm that an external observer would conclude was reasonably foreseeable.”

“Pathologies of altruism and empathy not only underlie health issues, but also a disparate slew of humankind’s most troubled features, including genocide, suicide bombing, self-righteous political partisanship, and ineffective philanthropic and social programs that ultimately worsen the situations they are meant to aid.”

Historically, altruism within a collective or group that becomes parochial or pathological eventually leads to a general pathological obedience. This pattern can be found in governments (federal, and local), in small towns, in the office, and in the home. Examples can be found on both sides of the ideological and political spectrum: Donald Trump’s “Make America Great Again” slogan. Governor Andrew Cuomo’s statement, “If everything we do saves just one life, I’ll be happy.” Or the “Wear a Mask. Save Lives.” propaganda campaign we’re seeing across the nation. All of these examples are catalysts for eliciting obedience. It has even been suggested that cooperation on a grand scale might be achieved via mandated medication.

“Probity, sincerity, candor, conviction, the sense of duty, are things which may become hideous when wrongly directed; but which, even when hideous, remain grand: their majesty, the majesty peculiar to the human conscience, clings to them in the midst of horror; they are virtues which have one vice–error…Nothing could be so poignant and so terrible…as the evil of the good.” ~Victor Hugo

Understanding the Connection
Tying this all together to address what is currently occurring in the world regarding COVID-19: the policies, reactions, lockdowns, social distancing, mask mandates, and unmitigated disaster to human progress and flourishing is staggering. It’s easy to recognize how this altruistic notion of protecting others has crossed the fine line into pathology. It may have even gone a step further into parochial altruism.

From a 2019 paper by Béatrice Boulu-Reshef and Jonah Schulhofer-Wohl. Social Distance and Parochial Altruism: An Experimental Study:

“Parochial altruism – individual sacrifice to benefit the in-group and harm an out-group – undermines inter-group cooperation and is implicated in a plethora of politically-significant behaviors.”

Conclusion: “We found that parochial altruism varies with social distance: higher social distance leads to a higher propensity to engage in parochial altruism, which is at its highest with high social distance to the in-and out-groups.”

And this, from another study by Angela R. Dorrough, Andreas Glöckner, Dshamilja M. Hellmann, and Irena Ebert, The Development of Ingroup Favoritism in Repeated Social Dilemmas

“Parochial altruism explains intergroup conflict through two phenomena that have been closely linked in human evolution: the readiness to benefit the ingroup (ingroup love) and to harm the outgroup (outgroup hate).”

In other words, social distancing and other isolating mandates may indeed lead to what can be classified as “righteous violence”. We see this in the news cycle daily. Mask vs. Anti-mask. Lockdown vs. Liberty. Immunology vs. Modeling. Left vs. Right. Us vs. Them, ad infinitum. The ease at which individuals enter an agentic state; that is, following the orders of someone in authority or within their ingroup…

“suggests not a failure of socialization (the usual control approach) but that they are/were oversocialized. Pathological obedience appears to be based on the development of a mentality that reflects long-term patterns of affiliation that inculcate a suppression of self-control in which executive function cedes its autonomy to external sources of direction.” ~Augustine Brannigan

At some point in our lives all of us as individuals have to deal with our own cognitive dissonances and the gaslighting we’ve endured at the hands of the State and other pathological and parochial agents, altruist or otherwise. These revelations are much harder to recognize in the self and so much easier to recognize in others. Outward projection is a deflection of individual responsibility onto the collective in-group or out-group. Inward reflection is individual recognition and ownership of responsibility.

Opportunity is the Future
In conclusion, it is becoming painfully evident that social distancing, lockdowns, and other policies implemented during this pandemic have not had enough positive impact to outweigh the negative. Divisive ingroup and outgroup conflict due to misinformation, catastrophically overstated predictions of death, and unyielding state propaganda will draw out global instability for the near future. We are beginning to hear more about starvation, overdoses, deaths of despair, and many other unintended consequences from lockdown policies that caught the public unaware and unprepared.

Misguided and sociopathic passions have fed us fear every day for nearly 6 months–destroying lives, businesses, hopes, and dreams. It will be difficult to recover from these tragedies. However, a healthy altruism already resides in the concepts of liberty, free markets, free trade, and exchanges that are beneficial to each individual. If in the spirit of entrepreneurship, the defectors from the status quo, the disruptors and ingenious can rise up to challenge the “new normal” and break away from the cult of blind obedience and pathological altruism, then there is still hope.

Read the rest here…