Some important economic items

Several noteworthy articles have caught my eye over the past couple of days.  Here are a few of them.

1.  In his latest ‘Outside The Box’ newsletter, John Mauldin includes a guest article by Dylan Grice.  It’s fairly long-winded and technical, but I think it repays attention by outlining a very interesting aspect of our current economic debate.  Here’s an excerpt from near the end, to show you what I mean.

As stock markets blink green on more QE supposedly making us all more wealthy, the developed world is saving less than it has at any time since WWII. And as central banks are conjuring up ever more liquidity, more thoughtful observers scratch their heads over the lack of collateral in the system. Of course, the problem is solvency, not liquidity. Capital comes from savings, and the policy of cheap credit with its inflation of time preference has encouraged spending, not saving. Scarce capital is growing ever scarcer.

One day, the price of capital will reflect its underlying scarcity, because one day it must. But in the meantime we think very carefully about the capital requirements of the businesses we own, growing increasingly wary of those which depend on artificially cheap “financial capital” for their survival. We note in passing that physical gold bullion is the oldest and purest capital there is…

What is the moral of this story for the steward of capital? Success in the long run requires that thought and action be fully independent from the false ideas of the herd. Yet today’s language of inflation embeds so many of these false ideas that the full rottenness of what passes for financial thinking today is obscured. One increasingly reads of capital stewards complaining that things seem more difficult today. We think it’s because they are. We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that something is very wrong, though people can’t quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of  credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference… and that while the consequences of these various inflations are profound, the new language of inflation which it has spawned is shallow. Therefore, not only is there insufficient capital to ensure future prosperity and insufficient realism to deal with the future this implies, there is insufficient linguistic precision for most people to articulate the problem let alone understand it. And when language itself becomes so grotesquely distorted, how does one go about substituting the customers’ unattainable hopes and expectations of never-ending growth with the need for principled and honest action?

There’s much more at the link.  (If you aren’t a registered user, here’s an Adobe Acrobat version in .PDF format.)  Thought-provoking and recommended reading.

2.  We saw recently how ‘flipping burgers’ as an entry-level job is under threat from automation.  Now comes the news that serving fruit juices and smoothies may be going the same way.

Presenting the biggest threat to minimum-wage restaurant workers everywhere: the JambaGo self-serve machine that just made the vast majority of Jamba‘s employees obsolete. Coming soon to a fast-food retailer near you.

Again, more at the link.  Many minimum-wage workers in fast food and similar industries had better be considering their long-term options very carefully indeed, because the odds are pretty good that their jobs are going to be automated out of existence in the not too distant future.  The same applies to many low-level blue-collar jobs such as warehouse packer, monitor of automated machinery (a.k.a. ‘button-pusher’), etc.

3.  The inimitable Charles Hugh Smith points out the Big Lie that government can continue to rack up unsustainable, unrepayable levels of debt without negative consequences.  Here’s an excerpt.

We are constantly reassured that the Fed can print (and distribute to its banker buddies) $1 trillion a year with nothing but positive consequences for the bottom 99.9%. On the fiscal side, the Federal government borrowing and squandering $1+ trillion a year is heralded as equally positive for everyone–especially the 49% of the populace drawing a direct cash benefit from the Federal government.

Possible blowback? None, or so we’re told. If anything, the Keynesian parrots squawk, we need to borrow and blow $2 trillion a year rather than a paltry $1+ trillion.

. . .

At the start of 2008, before the global financial meltdown gathered momentum, debt owed to the public was $5.1 trillion. Now it is $12.2 trillion, an increase of $7 trillion in less than six years. According to the Big Lie, this is no problem, and entirely sustainable: here’s your Free Lunch, America, enjoy!

Big Lie, meet unintended consequences. The problem with Big Lies is reality has not been disappeared; it still exists. Actions create consequences, and not necessarily the consequences that were planned or expected.

Again, more at the link.  It’s obvious to anyone who’s ever had to balance their own personal or household budget that the present situation is not only unsustainable, but rapidly approaching critical mass – and when it blows, nobody knows what’s going to happen, because numbers like these have never before in history been in play.  All we can be sure of is that it’s not going to be pretty.

4.  Karl Denninger looks at ‘The Bottom Line‘, and points out that Obamacare has made greatly increased medical costs inevitable for all of us.  He warns grimly:

He’s not joking.  Go read his whole article to get the low-down.  Essential reading, IMHO.

All the resources linked above make for useful and sobering reading.  Ignore them at your own risk.

Peter