Janet Yellen today:

“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

Seriously? If nothing else, the coming pension tsunami virtually guarantees it. It is truly scary that this powerful person seems to live in an alternate universe.


$15 Reality In Seattle

From a paper by UW professors on the effects of raising the minimum wage:

Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.45 A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.

Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%. Using data in Table 3, we compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.

Fitzgerald Update

Latest press reports are that the container ship was on autopilot with no-one on the bridge, and did not even notice that a collision had occurred for quite some time. Illegal, of course, but not in the least unusual with a crew of only 20.

More worrisome is that the USS Fitzgerald is reported to have failed to detect the container ship. Seriously? With a crew of nearly 300 and many millions of dollars worth of the most sophisticated radars in existence? What about, oh, lookouts?

Nothing To See Here

I just saw that Charles Schwab, the brokerage company, in April announced that the number of new accounts increased 44% y/y in 1Q2017 as individuals were opening up stock trading accounts at the fastest pace the company has seen in 17 years.

Actually the company called them individual investors but I can’t stomach calling anyone trading stocks at these prices an investor.

A more recent announcement from the company showed new accounts in May at 115,000, up 42% from the prior-year month and the sixth consecutive month of 100,000+ growth.

Whoopee! Oh, and 17 years ago, that would be…?

Money Isn’t Everything (Any More)

Last night’s special election in Georgia was interesting in that the Democratic Party attempted to buy the election. Their candidate spent $22 million, largely raised in California, against the Republican candidate’s $3.1 million. The most expensive Congressional election in history, and a spending ratio of 7 to 1.

But it didn’t work. Wow. I draw no conclusion other than that there’s something interesting going on here. And that’s a good thing.


FANG is so over. Now it is FANTASIA (Facebook, Amazon, Netflix, Tesla, Alphabet, SalesForce, Intel, and Apple)


Sorry, I just watched “The Princess Bride” again. What? How on earth did the crew of the USS Fitzgerald allow the billion-dollar vessel to collide with a container ship?

Not only is the Fitzgerald stuffed full of super-sophisticated radars (note the phased-array antenna right above the collision damage), it has a large crew trained to keep bridge watch and should have been doing so. From the position of the damage, it appears likely that the Fitzgerald was the give-way vessel.

In addition, the container ship was, as required by law, squawking its identification, position, course and speed over AIS. The track is recorded, it appears that the ship made a slight turn to port a few minutes before the collision but simply resumed that new course after the collision, implying it was on autopilot, holding a steady course and speed. Whether or not anyone was keeping watch or on the bridge is an open question. Container ships tend to believe in Bahamian rules “The big boat has the right of way.”

Most military vessels do not squawk on AIS. Understandable in wartime, highly questionable in peacetime. The container ship would have a collision alarm driven by AIS, which would not have been activated. But surely the Fitzgerald would have an AIS receiver which would have set off an alarm.

The only possible explanation I can think off was that the Fitzgerald was stopped and unable to move for mechanical reasons, and could not contact anyone on the container ship. We’ll see.

Not Funny

The deep state’s strategy for dealing with Trump is obviously based on the following folk wisdom:

“When you are up to your ass in alligators it’s difficult to remember that your initial objective was to drain the swamp”.

The Future Is Now

Debt pulls demand forward in time. Borrowers use debt to pay for consumption today and commit future income to service the debt.

The amount available for consumption today represents the present value of that committed income, discounted by the prevailing interest rates.

The further that borrowers reach into the future, the more that discount lessens the amount available today. The Fed wants consumption today, so it attempts to induce inflation in order that borrowers are more confident of their future nominal incomes, while holding interest rates low so that the discounting of that income is minimized.

This strategy has sustained consumption in the short term, at the expense of reducing future income available for consumption.

The problem is that the future is now.

As consumption slows, so does production and inflationary pressure. Defaults rise – just look at the subprime auto loans. Yes, defaults eliminate debt – but only at the expense of the creditor who takes an immediate hit to income, charged against net worth or equity capital. Lenders are forced to reduce their assets.  Borrowers find that debt service takes more of their income than they had expected. Purchasing power erodes and deflation sets in. Spending capacity falls even more rapidly and the economy slides into recession and depression.

The larger the accumulation of debt, the longer it takes to purge the financial system and restore it to stability. Debt – credit – is a necessary and healthy part of the economic system. But the economy cannot depend on consumption funded by the continuous growth of debt. Debt must revolve, expanding and contracting within limits proportional to the size of the economy.

A Bit Of Math

Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of the deadly numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.