The dislocation ahead

Its no secret that I believe that society is at risk of a dislocation.  An economic global shock could change the world forever, nothing like 2008.
I ran across a video yet again from Mish's wine country fund raiser.

This is a good casual talk between Chris and Mish, and I agree longer term the world ends up in a good place.  Between where we stand now and the passage through crisis is really the risk we will all face.

Mish on Inflation, Deflation, and the Economy

Good watch of interview of Mish, one of my favorite economic bloggers.

Once again, technology to break inefficient systems

The advent of the internet, and computer based systems that provide efficient virtual stores and delivery processes are creating ways for companies to avoid state taxes.

Amazon.com for example, avoids taxation by states by not being located in the state is ships to. States with budgetary problems are trying to come after companies for sales taxes.

Kudos for Amazon to respond by leaving the state of any shred of presence in the states that challenge it. Recently Texas came after Amazon, so Amazon is shutting down it's distribution system in that state.

The net effect is people working at that location will be unemployed, and shipping rates to people in Texas are likely to go up if they buy from Amazon. The state seems to think because Amazon is efficient, it is "taking away sales" from local Texas businesses.

How IRONIC we have "Free trade" agreements with China, but not similar agreement between the US states.

Kudos for Amazon to lead the charge in breaking the states of relying on inefficiency to justify the cost of sales tax. Technology over time will break these systems, and state funding will have to come from different sources.

Mish has more at his post here:

Corporate earnings analysis for the next decade

I highly recommend this article from Mish's blog showing corporate earnings from 1929 to current. It highlights the "generational" trend of corporate earnings, placing context on the macro driving forces.

I'd summarize it here, but I'd do it injustice. Head on over by clicking to read "Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think"

Europe proves they are more reckless than USA

The US dollar will keep enjoying some strength, as it proves itself to be not as bad as others. The Federal Reserve Bank has come close to raw printing of money. All money in the USA to-date has been created on the backs of selling US bonds. In effect, every dollar created has an interest rate attached to it, and therefore every dollar created creates a long term drag on US debt.

However, this arrangement is considered a sounder approach than just simply creating money, with no marketplace to counter such actions. The bond market in effect is the counter to the US over-doing money creation, as rates will rise if perception is the US shouldn't be creating more dollars.

The European Central Bank has decided it is OK for Ireland to simply create Euros, without going through the European union to do so. This is in direct violation of the European Union law, and will likely be the doom of the Euro if this opening volley continues unabated in the year to come.

For currency is based upon faith that the currency itself will retain value. By allowing Ireland to circumvent the established process of the European Union itself to create money, they are showing wrecklessness beyond America.

How far the Europeans have fallen, since 2008 when they criticized America for it's "quantitative easing" and other acts that are also a challenge to the US dollar valuation.

It looks like the European union has just lowered the bar to the next level. If the Euro can withstand continued raw printing of currency without a crisis in the years to come, I'd expect more countries to follow.

After all, raw printing of money vs money backed by bonds vs money back by gold vs money backed by sea-shells is all a construct. No one really knows the effect these actions will have on the Euro.

One thing is for sure, it is an indicator that a full out European crisis is a brewing to allow these actions.

I highly recommend reading Mish's summary by clicking here.

I put this on my Financial Ground Zero events. Even if this isn't a direct American crisis act, it is an important moment in world currency.

Notice that this event will get zero press in the mass media. It is amazing how when governments publicly violate their own laws, it doesn't even get a mention.

Ben Bernanke is wrong at every turn

The Federal Reserve Bank, a private institution, is lead by the Federal Reserve Board of Governors. The leader of the board is Ben Bernanke.

He follows in the footsteps of his predecessor, Allan Greenspan.

Mr. Bernanke's opinion and approach to finances was well documented by himself, in a college thesis paper. In that paper he described how the Federal Reserve could have minimized the Great Depression through additional actions they failed to take.

What we have been witsnessing since 2002 is Mr. Bernanke following his own playbook he started when he was in college. The problem I have with this approach is, he somehow knows better than the rest of the world, and has a "Secret sauce" to save the world economy.

Mish has a post that is exceptional reading (click). Mish starts with looking at Mr. Bernanke's own words issued in 2002 on how he would minimize the deflationary forces.

I do take one noteable issue with Mish's generalist view he presents of deflation will win over inflation. The US is tied to China like it or not. China's economy, although full of asset bubbles, is generally acknowledged to be growing. And assuming China will continue to grow over the next decade, it will surpass the US as the economic powerhouse.

What is perplexing is Mish acknowledges this as a possible outcome, in this post here. So I am at a loss on how he presents a world where deflation across the board "wins". So while I agree with Mish about Greenspan, and deflationary forces, I am in disagreement that his typical post view does not illustrate the resource calamity we all face from China's growth.

What it will be is USD devaluation, and should not be confused with economic inflation, with respect to natural resources and Asian currencies. American's (and all western countries) will face is a lowering of standard of living even more, as most wages remain depressed, but costs increase.

I hope Mish is right and I am wrong, but I am hedging my bets.

Mish has a great post explaining all the differing sources of information and opinions he either draws from, or disagrees with titled Straight Talk" with Economic Bloggers. I encourage people to read it and seek other perspectives.

Mish and Marc Faber

Mish and Marc Faber where interviewed on video about the economy.
I strongly recommend all readers click on this link, and watch the three videos.

I could not embed the video on this blog, also see Mish's commentary on his blog post.

Mish Roundup

I can't stress enough to readers that best time spent is reading MISH'S Global Economic Trend Analysis blog on a daily basis. Mish does an excellent job of cutting to the root economic facts on a wide variety of topics. Mish' of course isn't 100% right, but I'll take his spin vs mainstream news outlets any day. A roundup of some of Mish's greatest rants recently, click a few and read!

Dump Bernanke - How You Can Help! <--A MUST READ For everyone, pass along
Why Is California Broke? - And Illinois, Kansas, Arizona, San Diego,
Peak Autos: America's Love Affair with the Automobile May Be Coming to an End
25 State Unemployment Funds Bankrupt; Credit Card Defaults at Record Levels
Recent Graduates, Teens Hit Hard In Miserable Jobs Market
Sanity In Michigan On Public Worker Pay; "Living Wage" Insanity in Pittsburgh
No Way Out For Japan
Steve Keen on Banking Secrets and Fed Transparency
Worry Over the US$ and PIIGS
Housing Bubble Comparison: US, UK, Canada, Spain, Australia, Japan
Sovereign Debt Crisis Coming As Recovery Stalls