Tin foil hats and the total perspective vortex redux

[bernorange 8348]

I held off on restarting this thread from TOS.  But I ran across this bit published by CNBC that is a pretty decent summary of the state of things, so it seems to be a good bridge for restarting the thread here without having to copypasta anything from TOS:

Quote

The United States is currently waging economic warfare against one tenth of the world's countries with cumulative population of nearly 2 billion people and combined gross domestic product (GDP) of more than $15 trillion.

These include Russia, Iran, Venezuela, Cuba, Sudan, Zimbabwe, Myanmar, the Democratic Republic of Congo, North Korea and others on which Washington has imposed sanctions over the years, but also countries like China, Pakistan and Turkey which are not under full sanctions but rather targets of other punitive economic measures.

In addition, thousands of individuals from scores of countries are included in the Treasury Department's list of Specially Designated Nationals who are effectively blocked from the U.S.-dominated global financial system. Many of those designated are either part of or closely linked to their countries' leadership.

From a U.S. perspective, each one of the economic entities is targeted for a good reason be it human rights violations, terrorism, crime, nuclear trade, corruption or in the case of China, unfair trade practices and intellectual property theft.

But in recent months it seems that America's unwavering commitment to fight all of the world's scourges has brought all those governments and the wealthy individuals who support them to a critical mass, joining forces to create a parallel financial system which would be out of reach of America's long arm. Should they succeed, the impact on America's global posture would be transformational.
...
This month Russia was quick to recruit Turkey into the anti-dollar bloc, announcing it would back non-dollar trade with it, after a financial feud between Ankara and Washington broke out. China for its part is using its trillion-dollar Belt and Road Initiative as a tool to compel countries to transact in yuan terms instead of dollars. Pakistan, the number one recipient of Belt and Road money, and Iran have already announced their intention to do just that. Last month's BRICS (Brazil, Russia, India, China, South Africa) summit in Johannesburg was a call to arms against the dollar hegemony with countries like Turkey, Jamaica, Indonesia, Argentina and Egypt invited to join in what is known as "BRICS plus" with the goal of creating a de-dollarized economy.

The main front where the future of the dollar will be decided is the global commodity market, especially the $1.7 trillion oil market. Ever since 1973, when President Richard Nixon unilaterally severed the U.S. dollar from the gold standard and convinced the Saudis and the rest of the OPEC countries to sell their oil only in dollars, the global oil trade has been linked to the American currency. This paved the way for the rest of the commodities to be traded in dollars as well. The arrangement served America well. It created an ever growing demand for the greenback, which in turn enabled consecutive U.S. governments to freely run their growing deficits.

Not anymore. Because so many of the members of the anti-dollar alliance are exporters of commodities they no longer feel that their products should be either priced by a dollar-denominated benchmark like WTI and Brent or be traded in a currency they no longer crave.

For example, when China buys oil from Angola, gas from Russia, coal from Mongolia or soybeans from Brazil it prefers to do so in its own currency and thereby avoid unwanted exchange rate fees on both sides of the transaction. This is already beginning to happen.

Russia and China have agreed to transact some of their traded energy in yuan. China is pushing its main oil suppliers Saudi Arabia, Angola and Iran to receive yuans for their oil. And last year China introduced gold-backed futures contracts, dubbed "petro-yuan" in the Shanghai International Energy Exchange - the first non-dollar crude benchmark in Asia.
...
In the midst of America's economic euphoria it is worth remembering that one of every four people on the planet lives today in a country whose government is committed to end the dollar hegemony. ...

https://www.cnbc.com/2018/08/27/the-anti-dollar-awakening-could-be-ruder-and-sooner-than-most-economists-predict.html

[bernorange 8348]

Quote

Germany and France said they’re working on financing solutions to sidestep U.S. sanctions against countries such as Iran, including a possible role for central banks.

The discussions, which also involve the U.K., are a signal that European powers are trying to get serious about demonstrating a greater level of independence from the U.S. as President Donald Trump pursues his “America First” agenda.

“With Germany, we are determined to work on an independent European or Franco-German financing tool which would allow us to avoid being the collateral victims of U.S. extra-territorial sanctions,” French Finance Minister Bruno Le Maire said Monday during a meeting with press association AJEF. “I want Europe to be a sovereign continent not a vassal, and that means having totally independent financing instruments that do not today exist.”
...
“We have to react and strengthen Europe’s autonomy and sovereignty in trade, economic and finance policy,” Maas said in a speech in Berlin. Canadian Foreign Minister Chrystia Freeland also spoke at the event and said that her nation shares the goal of preserving a multilateral world order.

Le Maire is due to meet German counterpart Olaf Scholz in Paris on Wednesday.

More:  https://www.bloomberg.com/news/articles/2018-08-27/eu-looking-to-sidestep-u-s-sanctions-with-payments-system-plan

 

[bernorange 8348]

Echo, echo, echo...

Quote

... Congress is again pushing to exclude Iran from SWIFT as part of a sanctions program.

The difficulty this time is that our European allies are not on board and are seeking ways to keep the nuclear deal alive and work around U.S. sanctions.

Europe’s solution is to therefore create new nondollar payment channels.

In the short run, the U.S. is likely to enforce its sanctions rigorously. European businesses will probably go along with the U.S. because they don’t want to lose business in the U.S. itself or be banned from the U.S. dollar payments system.

But in the longer run, this is just one more development pushing the world at large away from dollars and toward alternatives of all kinds, including new payment systems and cryptocurrencies.

It’s also one more sign that dollar dominance in global finance may end sooner than most expect. We are getting dangerously close to that point right now.

https://dailyreckoning.com/the-world-is-ganging-up-against-the-dollar/

 

[Hugo Stiglitz 23359]

What should be done? 

[bernorange 8348]

Just now, Hugo Stiglitz said:

What should be done? 

My personal thoughts?  At a national level, we need to reconsider our foreign policy, monetary policy and the never ending drumbeats for American Hegemony.  It's not sustainable and we should be thinking about the long term.  At a personal level, Americans should check their assumptions about their retirement plans.  YMMV.

[Hugo Stiglitz 23359]

What is wrong with American hegemony?

[bernorange 8348]

It's not sustainable.  Do you even history or math, bro?

[Hugo Stiglitz 23359]

Technically, no civilization is sustainable if we’re going by history. 

I believe the rewards of America expanding its economic wealth and political influence worldwide (through peaceful means) are better than the consequences of not growing the American experiment.

[formermav43 4599]

11 minutes ago, Hugo Stiglitz said:

Technically, no civilization is sustainable if we’re going by history. 

I believe the rewards of America expanding its economic wealth and political influence worldwide (through peaceful means) are better than the consequences of not growing the American experiment.

Good luck with that.

[bernorange 8348]

The rest of the world might quibble with your view that American is only engaging in "peaceful means".  Aside from the actual military engagements from Libya on, locking nations out from the SWIFT system is the nuclear weapon of financial tyranny.  We are seeing the accelerating consequences to utilizing that stick.  Those accelerating consequences have the potential to completely undermine (ie. destabilize) the petrodollar and America's global influence.

I know you aren't a "long timer" to the community, so it's possible you didn't see the old thread on TOS, so I'll include a couple reference links for you below (for context on how this topic started and evolved over the last decade or so):

Spoiler

TOS:

http://www.shaggytexas.com/board/showthread.php/81531-Tin-foil-hats-economic-reality-and-the-total-perspective-vortex

Alternate:

http://www.pmbug.com/forum/f13/tin-foil-hats-economic-reality-total-perspective-vortex-75/

 

[David Dennison 18661]

20 minutes ago, Hugo Stiglitz said:

Technically, no civilization is sustainable if we’re going by history. 

I believe the rewards of America expanding its economic wealth and political influence worldwide (through peaceful means) are better than the consequences of not growing the American experiment.

LOL

[Hugo Stiglitz 23359]

10 minutes ago, formermav43 said:

Good luck with that.

 

9 minutes ago, bernorange said:

The rest of the world might quibble with your view that American is only engaging in "peaceful means".  Aside from the actual military engagements from Libya on, locking nations out from the SWIFT system is the nuclear weapon of financial tyranny.  We are seeing the accelerating consequences to utilizing that stick.  Those accelerating consequences have the potential to completely undermine (ie. destabilize) the petrodollar and America's global influence.

I know you aren't a "long timer" to the community, so it's possible you didn't see the old thread on TOS, so I'll include a couple reference links for you below (for context on how this topic started and evolved over the last decade or so):

  Reveal hidden contents

TOS:

http://www.shaggytexas.com/board/showthread.php/81531-Tin-foil-hats-economic-reality-and-the-total-perspective-vortex

Alternate:

http://www.pmbug.com/forum/f13/tin-foil-hats-economic-reality-total-perspective-vortex-75/

 

 

3 minutes ago, David Dennison said:

LOL

Hey, I didn’t say we’re doing it the best way.  My biggest criticism with the United States has long been the way we conduct foreign policy.  We have ceded too much of our foreign policy decision making to the military/CIA.  

We exert too much influence with the threat of military force and not nearly enough through diplomats, economic statesman, and political messaging.  

Our current approach is often counterproductive.  Maybe if we invested in building more schools and bridges around the world instead of tanks and bombs, we’d be more successful.

Our methods need to change but the goals should remain the same. 

[David Dennison 18661]

30 minutes ago, Hugo Stiglitz said:

Our methods need to change but the goals should remain the same. 

That being the case, we should expect pushback from other would be hegemons, thus making CIA and military escapades unavoidable.

Hegemony requires payment in blood and treasure.

[Hugo Stiglitz 23359]

6 minutes ago, David Dennison said:

Hegemony requires payment in blood and treasure.

Do you even active measures bro? 

[David Dennison 18661]

2 minutes ago, Hugo Stiglitz said:

Do you even active measures bro? 

Oh, you mean the Cold War? Yeah, I think we're doing alright if you consider the economic and military positions of the respective nation states, rat-fuckery and Donald Trump notwithstanding.

[bernorange 8348]

Quote

Jean-Claude Juncker has vowed to turn the euro into a global reserve currency that could rival the dollar as part of the European Union's drive to reduce its financial dependence on the United States.

In his last "State of the Union" speech to members of the European Parliament in Strasbourg today, the president of the European Commission said it was an "aberration" that the EU paid for more than 80 percent of its energy imports in U.S. dollars despite only 2 percent of imports coming from the U.S.

Most of the dollar-denominated imports are from Russia and the Gulf states.

"We will have to change that. The euro must become the active instrument of a new sovereign Europe," said Mr. Juncker, whose five-year tenure as commission president is due to end next year.
...

http://gata.org/node/18489

Quote

Jean-Claude Juncker has called on the European Union to champion the euro as a global currency to rival the dollar and demanded more powers for Brussels to flex its muscles on the world stage.
...
“We must do more to allow our single currency to play its full role on the international scene,” Mr Juncker said.

“It is absurd that Europe pays for 80pc of its energy import bill – worth €300bn (£267bn) a year – in US dollars when only roughly 2pc of our energy imports come from the United States,” he said.

“It is absurd that European companies buy European planes in dollars instead of euro,” he said. “The euro must become the face and the instrument of a new, more sovereign Europe.”
...

https://uk.finance.yahoo.com/news/jean-claude-juncker-calls-eu-132935049.html

If Europe is fully onboard the train, then the threat to the petrodollar is very real (though not imminent for you typical shaggy/surly peeps with a very short thought horizon).

[Bozo_Casanova 26287]

33 minutes ago, bernorange said:

http://gata.org/node/18489

https://uk.finance.yahoo.com/news/jean-claude-juncker-calls-eu-132935049.html

If Europe is fully onboard the train, then the threat to the petrodollar is very real (though not imminent for you typical shaggy/surly peeps with a very short thought horizon).

I heard the NPR story about this when I was driving to work. As you know I've been worried about the status of the dollar as the global reserve currency, and I think what we are seeing here with Juncker is potentially the beginning of the end unless we change course soon.  

[Onboard 2.0 9083]

14 minutes ago, Bozo_Casanova said:

I heard the NPR story about this when I was driving to work. As you know I've been worried about the status of the dollar as the global reserve currency, and I think what we are seeing here with Juncker is potentially the beginning of the end unless we change course soon.  

Saw this coming the day the European Union was created.........and I know jack about petro dollars or high finance. 

[Bozo_Casanova 26287]

4 minutes ago, Onboard 2.0 said:

Saw this coming the day the European Union was created.........and I know jack about petro dollars or high finance. 

It doesn't have to be this way. The truth is that the Euro is great for maintaining the peace in continental Europe but a mediocre currency. We're holding all the cards.

BUT - in the short span of two years the president and his team have done the nearly impossible: turned the Euro into a contender as we've withdrawn our leadership of the global economy. That means not only do we lose leverage, but that hyperinflation could be in play should the Euro actually replace the dollar. 

But her emails. Right? 

[Onboard 2.0 9083]

1 minute ago, Bozo_Casanova said:

It doesn't have to be this way. The truth is that the Euro is great for maintaining the peace in continental Europe but a mediocre currency. We're holding all the cards.

BUT - in the short span of two years the president and his team have done the nearly impossible: turned the Euro into a contender as we've withdrawn our leadership of the global economy. That means not only do we lose leverage, but that hyperinflation could be in play should the Euro actually replace the dollar. 

But her emails. Right? 

This battle was coming regardless of who's in the WH. The EU would love to be the center of the universe financially especially.The French are still pissed they aren't the international language. 

And her e mails are just one of the things that made her an incredible POS who had no business leading anyone.

[Bozo_Casanova 26287]

5 minutes ago, Onboard 2.0 said:

This battle was coming regardless of who's in the WH. The EU would love to be the center of the universe financially especially.

The first sentence is bullshit. The second sentence is sort of true but completely irrelevant. I'm sure Seychelles and Azerbajan and Brazil would also love to be the center of the financial universe. Who wouldn't?

The European common currency can't challenge the dollar as a reserve currency without major help from the US. Which they are getting. From the person you voted for. Good job. 

[Onboard 2.0 9083]

1 minute ago, Bozo_Casanova said:

The first sentence is bullshit. The second sentence is sort of true but completely irrelevant. I'm sure Seychelles and Azerbajan and Brazil would also love to be the center of the financial universe. Who wouldn't?

The European common currency can't challenge the dollar as a reserve currency without major help from the US. Which they are getting. From the person you voted for. Good job. 

No it's not. Their game was consolidation, and strength thru that consolidation.  Europe land has chafed at the US dominance since WWII.

Va. went to Hillary, as I thought it would my vote didn't do anything.

[bernorange 8348]

I've been on this issue for well over a decade.  The petrodollar exists because our neighbors in the world choose to use it. 

The Saudis were really leveraging their good will over their part in propping up the dollar based oil trade by having the USA be their muscle/proxy in the middle east.  Our relationship with them chilled in the aftermath of 9/11 when it became known that they played a prominent role in it.  Obama refused to be their puppet in reshaping the middle east (Iran, Syria, etc.).  The Saudis made some noise, but so far haven't acted to match their rhetoric and still support the petrodollar (perhaps in part because of what happened to Qadafi/Libya after they threatened to undermine the system by trading oil without dollars).

China, Russia and folks in the USA's bad actors list have been making noise about the global currency issue since forever.  We made concessions to China within the IMF but it hasn't changed anything on this issue.

The real change in the story is the EU.  There appears to be a breakdown in their support and from I'm reading it's largely driven by the increased sanctions the USA is imposing on their trade partners.  The EU is not on board.  The sanctions affect their oil supply.  It affects their economy(ies).

If the confluence of current events provide the impetus for all our global neighbors to create a real alternative payment system to the SWIFT system and start trading sans dollars, it will be the beginning of the end of American hegemony.

 

Edited September 13, 2018 by bernorange

[Bozo_Casanova 26287]

47 minutes ago, Onboard 2.0 said:

No it's not. Their game was consolidation, and strength thru that consolidation.  

 Who cares what their game was? We have the incumbency and seem hell-bent on giving it up. You don't seem to understand that their "game" is irrelevant unless we (and by "we" I mean the president and you, his party) enable it. 

[Bozo_Casanova 26287]

9 minutes ago, bernorange said:

If the confluence of current events provide the impetus for all our global neighbors to create a real alternative payment system to the SWIFT system and start trading sans dollars, it will be the beginning of the end of American hegemony.

 

I think disruptive technology like distributed ledgering is coming for the incumbent systems before the clubs get there. The question is how the store of value behind the alternative rails is denominated. 

[bernorange 8348]

I don't believe that blockchain, at least as it exists now, is going to win the day.  Every big player that has invested time on it has ended up abandoning the project for the same reasons - it's too slow and doesn't scale well for high transaction volumes.

Russia has tried to build one (SWIFT alternative) for the Ruble, but from I've read, it's an epic fail technically (most perplexing given Russia's rep as a haven of proficient programmers [er hackers]). 

If the EU builds a SWIFT alternative, it will most likely focus on the Euro, but it doesn't have to.  If they are smart, they would build one capable of clearing transactions in multiple currencies.

Edited September 13, 2018 by bernorange

[Bozo_Casanova 26287]

3 minutes ago, bernorange said:

I don't believe that blockchain, at least as it exists now, is going to win the day.  Every big player that has invested time on it has ended up abandoning the project for the same reasons - it's too slow and doesn't scale well for high transaction volumes.

Russia has tried to build one (SWIFT alternative) for the Ruble, but from I've read, it's an epic fail technically (most perplexing given Russia's rep as a haven of proficient programmers [er hackers]). 

If the EU builds a SWIFT alternative, it will most likely focus on the Euro, but it doesn't have to.  If they are smart, they would build one capable of clearing transactions in multiple currencies.

Good post. I'm agnostic about blockchain at the moment, but for what it's worth, both the Ripple and Stellar rails (not the token, the underlying tech) are viewed as very promising by banks that handle heavy volumes of low value international remittances. That says something both about speed and cost. 

Edited September 13, 2018 by Bozo_Casanova

[F250 28692]

1 hour ago, Onboard 2.0 said:

No it's not. Their game was consolidation, and strength thru that consolidation.  Europe land has chafed at the US dominance since WWII.

And aggy has chafed at U.T.'s dominance even longer. Sure they want to be better than Texas in all things, especially football but that isn't going to happen unless we have a shitty head coach that has a worthless offense coordinator. Wait a second...

Seriously, Trump's mishandling of the global economy is allowing the Europeans to position themselves to actually do something about the dominance of the U.S. dollar. What the E.U. wants doesn't matter unless the U.S. allows it and our current policy is setting up a situation where it will be allowed. Peter Navarro is the Tim Beck of international trade.

 

[bernorange 8348]

So, there is some pretty significant news on this issue lately:

Quote

...
In a statement after a meeting of Britain, China, France, Germany, Russia and Iran, the group said they were determined to develop payment mechanisms to continue trade with Iran despite skepticism by many diplomats that this will be possible.

"Mindful of the urgency and the need for tangible results, the participants welcomed practical proposals to maintain and develop payment channels notably the initiative to establish a Special Purpose Vehicle (SPV) to facilitate payments related to Iran's exports, including oil," the group said in a joint statement issued after the statement.

Several European diplomats said the SPV idea was to create a barter system, similar to one used by the Soviet Union during the Cold War, to exchange Iranian oil for European goods without money changing hands.

The idea is to circumvent U.S. sanctions due to be restored in November under which Washington can cut off from the U.S. financial system any bank that facilitates an oil transaction with Iran.

Speaking to reporters after the meeting, European Union foreign policy chief Federica Mogherini said the decision to set up such a vehicle had already been taken and that technical experts would meet again to flesh out the details.

"In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world," she said.
...

More:  https://www.haaretz.com/world-news/remaining-powers-of-nuclear-deal-looking-to-save-trade-ties-with-iran-1.6495264

Foreign news source reportedly claims:

Also:

Quote

Turkey is reportedly looking into a plan to establish a join bank with Iran to help both countries trade in local currencies as US pressures to restrict their access to the dollar are already mounting.

Ümit Kiler, the Turkish Representative Chairman of Iran-Turkey Business Council, wrote in a recent article in the Turkish newspaper Dünya that the plan would be put on the agenda of the Iranian and Turkish governments in the near future, stressing that the move would be crucial in promoting economic bonds between Tehran and Ankara.
...

https://www.presstv.com/Detail/2018/09/17/574420/Turkey-mulling-plan-to-create-joint-bank-with-Iran--

 

[bernorange 8348]

So this is not news to anyone who has been paying attention, but it's still interesting that folks with voices in the mainstream financial press are starting to talk about it:

Quote

A backlash against the world’s reserve currency may be brewing as rivals to America look to weaken the dollar’s hold over the global financial system, says Marko Kolanovic, macro-market wiz at JPMorgan Chase & Co.

President Donald’s Trump’s isolationist foreign policy is a “catalyst for long-term de-dollarization” among countries from Europe and Asia to the Middle East that have long lamented the hegemony of the U.S. currency, he wrote in a note co-authored with Bram Kaplan.

“With the current U.S. administration policies of unilateralism, trade wars, and sanctions increasingly affecting both friends and foes, the question arises whether the rest of the world should diversify away from the risks of the U.S. dollar and dollar-centric finance,” said the quantitative and derivatives strategists.
...
Gold, which tends to benefit from a weaker greenback, also offers a hedge for any tentative push to de-dollarize. And it’s looking decidedly cheap right now, according to JPMorgan.
...

https://www.bloomberg.com/news/articles/2018-09-27/jpmorgan-s-marko-kolanovic-says-dollar-hegemony-is-now-at-risk

... and on that last note:

Quote

Central banks have emerged as some of the biggest buyers of gold this year, with purchases hitting their highest level in six years, according to analysts at Macquarie.

Central banks have bought a total of 264 tonnes of gold this year, "by far the most at this stage of the year of any period in the last six years," the bank said.

While gold buying has been dominated by Russia, Turkey, and Kazakhstan, Poland also bought gold for the first time since 1998, Macquarie said. ...

http://gata.org/node/18526  (ht: ft.com)

Edited October 1, 2018 by bernorange

[maninblack 7974]

Don't look now but stocks, bonds and the dollar all falling together

[happyfunball 481]

5 hours ago, maninblack said:

Don't look now but stocks, bonds and the dollar all falling together

Amazing what rising interest rates and a trade war can do

[babysdaddy 2718]

Has that happened before, ever? Gold, equities, and bonds down on the same day?

[Anastasis 23394]

gold was up today

[Rusty Shackelford 414]

Sub’d but I wish this was on the current events board

[bernorange 8348]

8 hours ago, Rusty Shackelford said:

Sub’d but I wish this was on the current events board

Yeah, sorry.  The subject matter of this topic flows back and forth between economics and politics - they are intertwined - so I put it here to cover both bases.

~~~

So, I was musing about the big picture this morning (I posted the following on another site):

A month ago, the BIS put out a report warning that the US dollar makes up at least 80% of all the letters of credit outstanding, which are the means of settlement of international trade contracts. [*]

Recently, the BIS has warned about the both the record number of zombie firms and the more dire straights zombie firms face. [*]

The Fed has indicated that it wants to continue raising interest rates. This will exacerbate problems for bond markets all over.

The USA wants to force the issue with sanctions on Iran. Venezuela (and their oil production) is going down the toilet. The price of oil is forecasted to rise. Rising oil prices are not good for the US economy or equity (stock) markets.

Italy might become Greece 2.0 - only 10 times larger in size.[*] It's a huge problem for the EU. At the same time, Brexit negotiations aren't coming together and the odds for a "hard Brexit" are rising which would likely lead to short term interruptions in trade between the UK and the EU. [*] Europe has some serious headwinds to navigate.

Is it any wonder, really, that central banks are now buying gold at levels not seen in many years? [*]

[maninblack 7974]

[Jack Burton 35]

Posted wo comment?

[happyfunball 481]

https://www.wsj.com/articles/americas-economy-isnt-overheating-1539125398

Quote

The U.S. unemployment rate declined to 3.7%, a rate unseen in almost half a century, the Bureau of Labor Statistics reported Friday. Given the booming labor market, the Federal Reserve has reason to worry that the economy may be overheating. Although we are getting close to the peak of the business cycle, three labor-market indicators suggest we’re not there yet: Job growth is too high, wage growth is too low, and the employment rate is still slightly below the level consistent with full employment.

First, consider the rate of job creation. Jobs must be created every month to keep up with population growth. Throughout a business cycle, labor economists can determine whether the number of new jobs is sufficient to keep pace with the added population using the employment-to-population ratio. The U.S. EPOP currently stands at 60.4%. It’s always well below 100% because some people are retired, at home or in school. Population growth over the past year has averaged 227,000 a month, so the U.S. economy must create 137,000 jobs monthly—60.4% of the population change—to keep up.

September saw 134,000 new jobs created—almost exactly the full-employment number. But the three-month average is 190,000 jobs created a month. (The three-month average is more accurate because of month-to-month volatility; monthly numbers have an average error of about 75,000.) Because 190,000 significantly exceeds the 137,000 threshold, the U.S. labor market is creating jobs at a rate faster than required to absorb the added population.

This suggests the U.S. isn’t yet at full employment. When the economy is at full employment, job creation is just large enough to keep up with population growth, neither increasing nor decreasing unemployment rates or EPOP. When the economy is recovering, job growth exceeds population growth, which makes up for jobs lost during a recession. The current rate of job creation points to a labor market still in the recovery phase.

Another clue that full-employment hasn’t been achieved is that the EPOP remains below its full-employment level. The prerecession EPOP peak of 63.4% will not likely be reached because the population is aging and retirees depress the EPOP’s natural level. But a peak rate that accounts for demographic changes is closer to 61%, according to the Council of Economic Advisers and a National Bureau of Economic Research report. That’s still half a percentage point above where the U.S. is now. More evidence that the economy isn’t at peak employment is that the employment rate of 25- to 34-year-olds, depressed throughout the economic recovery, is now growing. It has risen by a full percentage point since January, suggesting there are still people to pull back into the workforce.

Finally, the rate of wage growth indicates that the labor market isn’t overheated. When the economy runs out of workers, labor demand drives increased wages rather than employment as employers compete with each other for the scarce labor. Absent labor-market slack, wages tend to grow at rates above those consistent with target inflation and productivity increases. Wage growth at rates consistent with productivity growth isn’t inflationary, since additional output from increased productivity reduces upward pressure on prices. U.S. productivity growth has averaged 1.3% over the past four quarters. Add the Fed’s 2% target inflation figure to get 3.3%. This exceeds the 2.8% actual rate of wage growth over the past 12 months. If the economy were overheating, wages would be growing at a faster rate.

Despite the low unemployment rate of 3.7%, the U.S. labor market has some room to expand before it hits full employment. That’s good news: The Fed need not worry that the tight labor market is indicative of an overheated economy—yet.

 

[bernorange 8348]

On 9/13/2018 at 4:44 PM, bernorange said:

I've been on this issue for well over a decade.  The petrodollar exists because our neighbors in the world choose to use it. 

The Saudis were really leveraging their good will over their part in propping up the dollar based oil trade by having the USA be their muscle/proxy in the middle east.  Our relationship with them chilled in the aftermath of 9/11 when it became known that they played a prominent role in it.  Obama refused to be their puppet in reshaping the middle east (Iran, Syria, etc.).  The Saudis made some noise, but so far haven't acted to match their rhetoric and still support the petrodollar (perhaps in part because of what happened to Qadafi/Libya after they threatened to undermine the system by trading oil without dollars).

...

We have made a deal with the devil and it's a dangerous game we play in trying to both oppose and appease him.  Saudi Arabia is starting to push the envelope and America cannot go "nuclear option" on them.  The news about Khashoggi reportly being assassinated by Saudi Arabia hit squad inside the Saudi consulate/embassy in Turkey on the orders of the Crown Prince could end up being a serious inflection point in the USA-Saudi relationship and possibly the petrodollar system.  If the USA spanks Saudi Arabia to hard (or publicly) with sanctions or such, it might just be the tipping point for them to start trading their oil with the rest of the world in Euros or whatever (just not the dollar).  And if Saudi does it (trading oil sans dollars) and gets away with it (doesn't get "Libya'd"), it will encourage the rest of the OPEC nations to follow suit.  It would mark the official end of the petrodollar and Americans might finally wake up to the fiat fraud underpinning our awesome standard of living as it crumbles and hit's every Joe Sixpacks' pocket.

Edited October 15, 2018 by bernorange

[Rusty Shackelford 414]

https://www.wsj.com/articles/americas-economy-isnt-overheating-1539125398

The U.S. unemployment rate declined to 3.7%, a rate unseen in almost half a century, the Bureau of Labor Statistics reported Friday. Given the booming labor market, the Federal Reserve has reason to worry that the economy may be overheating. Although we are getting close to the peak of the business cycle, three labor-market indicators suggest we’re not there yet: Job growth is too high, wage growth is too low, and the employment rate is still slightly below the level consistent with full employment.

First, consider the rate of job creation. Jobs must be created every month to keep up with population growth. Throughout a business cycle, labor economists can determine whether the number of new jobs is sufficient to keep pace with the added population using the employment-to-population ratio. The U.S. EPOP currently stands at 60.4%. It’s always well below 100% because some people are retired, at home or in school. Population growth over the past year has averaged 227,000 a month, so the U.S. economy must create 137,000 jobs monthly—60.4% of the population change—to keep up.

September saw 134,000 new jobs created—almost exactly the full-employment number. But the three-month average is 190,000 jobs created a month. (The three-month average is more accurate because of month-to-month volatility; monthly numbers have an average error of about 75,000.) Because 190,000 significantly exceeds the 137,000 threshold, the U.S. labor market is creating jobs at a rate faster than required to absorb the added population.

This suggests the U.S. isn’t yet at full employment. When the economy is at full employment, job creation is just large enough to keep up with population growth, neither increasing nor decreasing unemployment rates or EPOP. When the economy is recovering, job growth exceeds population growth, which makes up for jobs lost during a recession. The current rate of job creation points to a labor market still in the recovery phase.

Another clue that full-employment hasn’t been achieved is that the EPOP remains below its full-employment level. The prerecession EPOP peak of 63.4% will not likely be reached because the population is aging and retirees depress the EPOP’s natural level. But a peak rate that accounts for demographic changes is closer to 61%, according to the Council of Economic Advisers and a National Bureau of Economic Research report. That’s still half a percentage point above where the U.S. is now. More evidence that the economy isn’t at peak employment is that the employment rate of 25- to 34-year-olds, depressed throughout the economic recovery, is now growing. It has risen by a full percentage point since January, suggesting there are still people to pull back into the workforce.

Finally, the rate of wage growth indicates that the labor market isn’t overheated. When the economy runs out of workers, labor demand drives increased wages rather than employment as employers compete with each other for the scarce labor. Absent labor-market slack, wages tend to grow at rates above those consistent with target inflation and productivity increases. Wage growth at rates consistent with productivity growth isn’t inflationary, since additional output from increased productivity reduces upward pressure on prices. U.S. productivity growth has averaged 1.3% over the past four quarters. Add the Fed’s 2% target inflation figure to get 3.3%. This exceeds the 2.8% actual rate of wage growth over the past 12 months. If the economy were overheating, wages would be growing at a faster rate.

Despite the low unemployment rate of 3.7%, the U.S. labor market has some room to expand before it hits full employment. That’s good news: The Fed need not worry that the tight labor market is indicative of an overheated economy—yet.

 


I hope J-Pow read that

[Rusty Shackelford 414]

We have made a deal with the devil and it's a dangerous game we play in trying to both oppose and appease him.  Saudi Arabia is starting to push the envelope and America cannot go "nuclear option" on them.  The news about Khashoggi reportly being assassinated by Saudi Arabia hit squad inside the Saudi consulate/embassy in Turkey on the orders of the Crown Prince could end up being a serious inflection point in the USA-Saudi relationship and possibly the petrodollar system.  If the USA spanks Saudi Arabia to hard (or publicly) with sanctions or such, it might just be the tipping point for them to start trading their oil with the rest of the world in Euros or whatever (just not the dollar).  And if Saudi does it (trading oil sans dollars) and gets away with it (doesn't get "Libya'd"), it will encourage the rest of the OPEC nations to follow suit.  It would mark the official end of the petrodollar and Americans might finally wake up to the fiat fraud underpinning our awesome standard of living as it crumbles and hit's every Joe Sixpacks' pocket.

furk

[bernorange 8348]

Quote

Saudi Arabia is considering saying that missing journalist Jamal Khashoggi died in a botched interrogation, according to media reports, an explanation that could deflect suspicions the royal court ordered him killed and give the U.S. and Turkey a way out of confronting a regional powerhouse.

...

https://www.bloomberg.com/news/articles/2018-10-16/new-khashoggi-disappearance-narrative-weighed-as-pompeo-arrives?srnd=premium-middle-east

It looks to me like the USA (ie. Trump's foreign policy team) does not want to push this envelope.  USA principles : 0, Saudi oil / petrodollar : 1

[bernorange 8348]

~~~

I saw some speculation published on ZH that Jared Kushner may have provided MBS with an "enemies list" developed by US intelligence prior to the mass detention at the Riyadh Ritz Carlton Hotel last year and that Khashoggi's name might have been on that list.  They (ZH) also claim that Kushner had a phone conversation with MBS the day before Khashoggi was killed.  Not sure if that's relevant as it takes time to mobilize a kill squad from SA to Turkey and I don't know that ~24 hours is realistic.

If ZH are supposed to be Russian propagandists supporting Trump, I don't know what motivation they have to publish this speculation.

[Pig Bellmont 8692]

On 10/10/2018 at 9:00 PM, happyfunball said:

Amazing what rising interest rates and a trade war can do

It’s almost as if tariffs have negative effects beyond increasing costs of goods to US consumers and limiting our export markets. 

[Hugo Stiglitz 23359]

8 hours ago, bernorange said:

~~~

I saw some speculation published on ZH that Jared Kushner may have provided MBS with an "enemies list" developed by US intelligence prior to the mass detention at the Riyadh Ritz Carlton Hotel last year and that Khashoggi's name might have been on that list.  They (ZH) also claim that Kushner had a phone conversation with MBS the day before Khashoggi was killed.  Not sure if that's relevant as it takes time to mobilize a kill squad from SA to Turkey and I don't know that ~24 hours is realistic.

If ZH are supposed to be Russian propagandists supporting Trump, I don't know what motivation they have to publish this speculation.

Russian Propaganda doesn’t necessarily have a specific strategic objective.

Muddying the waters and creating confusion surrounding existing narratives is the goal.  

Just polluting the information space with noise among target audiences is an achievement in itself.

[maninblack 7974]

Russia liquidates nearly all its holdings of US debt & invests money in gold

Quote

The Central Bank of Russia has continued getting rid of US Treasury bonds in August. The share of Russian investments in American debt is getting close to zero.

Russian investments in US securities as of August have fallen to just $14 billion. Back in 2011, Russia was one of the largest holders of US debt with a $180 billion investment.

The reason is not only about politics and US sanctions against Russia, a broker at Otkritie bank Timur Nigmatullin told RIA Novosti. The US Federal Reserve is hiking interest rates, which makes American bonds cheaper, he said. “Russia has almost dropped out of the list of holders of US government debt, being the 54th largest holder.”

“A further sale of US Treasury bonds by Russia will most likely be compensated by buying gold and opening short-term deposits at banks,” he said. The share of precious metals in the country's foreign reserves has reached a record 18 percent, closely approaching the share of dollar investments.

The largest investors in US debt, China and Japan, have also cut their holdings. Chinese holdings of US sovereign debt dropped to $1.165 trillion in August, from $1.171 trillion in July, marking the third consecutive month of declines. Japan has slashed its holdings of US securities to $1.029 trillion in August, the lowest since October 2011.

The reason for holding money in US bonds is global trade, which is still dominated by the dollar, director of macroeconomic analysis at Expert RA Anton Tabah told Izvestia daily. So, countries are forced to have a lot of dollars in cash, and US bonds are the best option for that.

India and Turkey have followed Russia's lead. Turkey has dropped out of the top-30 list of holders of American debt, while India has been liquidating its investment for five consecutive months to $140 billion in August.

 

[bernorange 8348]

Russia has been selling Treasuries and buying gold for a long time now, but never is quantities that would roil markets.  I'm a bit surprised to see just how far they have gone with it - over 90% divestment in 7 years.

[bernorange 8348]

So... related to post #29...

Quote

...
On Monday, Secretary of State Mike Pompeo announced that as part of the reimposed sanctions, eight important oil importers — China, India, South Korea, Turkey, Italy, Greece, Japan and Taiwan — would receive 180-day exceptions, or waivers, letting them buy Iranian oil as long as they show reductions in the amounts.

More than 20 countries already have cut their imports of Iranian oil, shrinking Iran’s exports by about one million barrels a day, Mr. Pompeo said.

American officials would need great leverage to induce China and India, Iran’s biggest customers, to cut off all their imports; the two nations have enormous energy needs. Chinese leaders are incensed over the intensifying trade war begun by Mr. Trump, and they are wary about the diplomacy Mr. Trump is conducting with North Korea over that country’s nuclear program.

Given all that, experts say, it is unlikely that China and India will end all imports of Iranian oil — even after the 180-day waivers expire.

“I think the U.S. made the calculation that market stability and geopolitical relationships superseded interests in trying to bring down Iranian exports,” said Henry Rome, an Iran analyst at the Eurasia Group, a Washington-based political risk consultancy.
...

 

https://www.nytimes.com/2018/11/05/world/middleeast/iran-sanctions-explained.html

Quote

The top U.S. diplomat has granted an exception to certain U.S. sanctions that will allow the India-led development of a port in Iran as part of a new transportation corridor designed to boost Afghanistan’s economy, a State Department spokesman said on Tuesday.

The exception granted by Secretary of State Mike Pompeo to U.S. sanctions reimposed on Iran on Monday also will permit the construction of a railway line from Chabahar port to Afghanistan, and for shipments to the war-torn country of non-sanctionable goods, like food and medicines, the spokesman said.

In addition, Afghanistan will be allowed to continue importing Iranian petroleum products, the spokesman said.

“These activities are vital for the ongoing support of Afghanistan’s growth and humanitarian relief,” the spokesman said in a statement emailed to Reuters.
...

 

https://www.reuters.com/article/us-iran-nuclear-afghanistan-idUSKCN1NB2HW

 

Quote

...
Iran analysts, however, said the announcement on waivers points to US President Donald Trump's inability to rally the international community and reach a consensus against Tehran.

"The Trump administration is waking up to the fact that its Iran policy has strained ties with a wide range of countries," Esfandyar Batmanghelidj, founder of the Iranian economy website Bourse Bazaar, told Al Jazeera.

"Showing flexibility on oil imports may be a way for the US to seek more cooperation on sanctions in other areas."

In Tehran, the decision on waivers is seen as "a victory", as it was able to sustain its energy exports "after months of US threats that oil sales would be pushed down to zero".
...

 

https://www.aljazeera.com/news/2018/10/issues-exceptions-sanctions-iran-oil-gas-loom-181029185330547.html

Adding an exception for China is understandable.  We don't really have the leverage to bind them to our will.  And they aren't going to risk an internal revolution to appease the USA's foreign policy goals.

Adding an exception for India was something I was expecting to see.  The Chabahar port issue was likely a line in the sand point of no return that India was not willing to concede.  I haven't posted much about it, but I've been reading about it for a while now.

What's really interesting to me are the exceptions for Turkey, Greece and Italy.  Is this an effort to undermine the impetus for the EU's "special purpose vehicle"?  It's interesting that the exceptions have a 180 day expiration period.  We'll see if that sticks or, much like Congress' "spending limit", just gets extended whenever the limit is reached.

[happyfunball 481]

Quote

Investors start to fret about ballooning US public debt

Quote

Last month, as the US midterm elections approached, Deutsche Bank analysts released a calculation that should have made American voters wince. It shows that the US government currently pays $1.43bn each day (yes, day) to service its public debt — 10 times more than any other G7 country (Italy is a distant second in this grim league).

This is striking, even allowing for the size of the American economy. But what is doubly thought-provoking is that this $1bn bill has materialised when interest rates are still fairly low by historical standards. And that invites a crucial question for the US Congress: what will happen to that debt, and servicing costs, if (or when) interest rates climb to a more normal level?

Until recently, neither investors nor voters seemed to care particularly. After all, asset managers have flocked to buy US treasuries in recent years, even as America’s debt pile swelled above $15tn. And those once-feared bond vigilantes seemed all but dead last year when President Donald Trump’s government announced massive tax cuts, further increasing debt.

But markets are getting more twitchy. Consider what happened during this week’s midterm elections. As the results tumbled in on Tuesday night, bond yields jumped whenever Republican candidates gained an edge. However, those yields fell back as the polling map turned blue, and Democrats took the House of Representatives.

An optimist might simply blame these swings “just” on a perception that the Republicans are more growth-friendly. Indeed, Larry Kudlow, White House economic adviser, recently told the FT that the main reason why long term US yields had edged up this year — aside from tightening by the Federal Reserve — is that investors love the economic expansion that has been unleashed by Republican tax cuts. And he dismissed the idea that these are creating a fiscal threat, arguing that America should be able to “grow out” of its debt in the long term.

But another way to interpret this week’s swings is that some investors are finally becoming so uneasy about the fiscal stance that they hope that a Democrat-controlled House will clip Mr Trump’s wings. And it is easy see why those investors might be starting to fret.

Consider again that daily debt servicing number. According to the Congressional Budget Office, the total annual cost of net interest payments on American debt in 2018 will be around $318bn. Right now, that sum seems manageable, relative to the overall American budget.

But the CBO calculates that servicing costs will triple in size to nearly $1tn by 2028, on current policy trajectories and assuming that interest rates rise towards their long-term average of 3.7 per cent and 2.8 per cent for 10-year bonds and three-month bills respectively (or slightly above the current levels of 3.2 per cent and 2.34 per cent).

If so, interest payments will soon become the third biggest item on the budget, eclipsing even military spending. However, if interest rates rise faster than the CBO expects, the picture would be worse. For another striking feature of American debt is that its average maturity is only six years, shorter than most European countries. And during the Trump administration this maturity has — lamentably — shortened.

Before the election, for example, the US Treasury quietly revealed that the deficit is poised to top $1tn for the first time in history. To plug this gap, Steven Mnuchin, the US Treasury secretary, plans to sell $83bn of bonds, which is also a record, eclipsing even the level of bond sales after the global financial crisis. Strikingly, Mr Mnuchin predicts that almost half of this tally — some $37bn — will have a maturity of just three years. This short maturity makes the debt more prone to rollover risks.
 

https://www.ft.com/content/314190ea-e2a9-11e8-8e70-5e22a430c1ad?kbc=82645c31-4426-4ef5-99c9-9df6e0940c00